Oracle Surpasses $10-Billion Mark In Quarterly Sales

Oracle recorded its first $10 billion quarter in its just-completed fourth quarter, the company reported Thursday, with sales of the company's software products showing impressive growth for the quarter and the entire fiscal year.

But nearly 18 months after acquiring Sun Microsystems Oracle is still looking for solid sales growth across its server and storage hardware products.

For the fourth quarter ended May 31 Oracle reported total revenue of $10.8 billion, up 13 percent from $9.5 billion in the same quarter last year. Net income for the quarter surged to $3.2 billion, up 36 percent from $2.4 billion last year.

For all of fiscal 2011 ended May 31 the company reported total revenue of $35.6 billion, up 33 percent from $26.8 billion in fiscal 2010. Net income for the fiscal year soared to $8.5 billion, up 39 percent from $6.1 billion last year.

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Not surprisingly, Oracle's financial performance was strongest in its core software business. New software license revenue grew 19 percent in the fourth quarter to $3.7 billion, while software license updates and product support revenue increased 15 percent to $4.0 billion.

For all of fiscal 2011 new software license revenue grew 23 percent to $9.2 billion, while software license updates and product support revenue increased 13 percent to $14.8 billion.

"Our software business is now even bigger than IBM's software business," said co-president and CFO Safra Catz during a conference call with financial analysts Thursday.

Database and middleware software sales reached $5.4 billion in the fourth quarter while application sales were $2.3 billion. Database and middleware software sales were $16.6 billion for all of fiscal 2011 while application sales were just under $7.5 billion.

Sales of hardware system products, however, were down 6 percent in the fourth quarter to $1.2 billion. Hardware sales for all of fiscal 2011 were more than $6.9 billion: Oracle acquired Sun Microsystems and its hardware products in January 2010.

One analyst on the call noted that this was the second quarter where hardware revenue didn't meet expectations.

Oracle executives took the position that the volume of hardware sales is down because the company is focused more on selling higher priced, higher margin hardware products.

"I think we're just following the fundamentals of building a solid business," co-president Mark Hurd said on the analyst call. "We want to grow the top line right, and to grow the top line right, getting rid of those low-margin businesses is key." But Hurd acknowledged that eventually Oracle must begin to grow top-line hardware sales.

"Later this year I expect the growth of the Sun hardware products to become quite obvious," Catz said.

CEO Larry Ellison noted on the call that Oracle now has more than 1,000 of its high-end Exadata database servers installed. "And we plan on tripling that number this year," he said. And he added that early sales growth for the company's Exalogic Elastic Cloud server, unveiled late last year, has been faster than the Exadata system.

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Ellison said Oracle would unveil an in-memory analytics accelerator appliance at the Oracle OpenWorld show this fall. That appliance will help businesses analyze the increasingly huge volumes of data they are collecting.

For the current first quarter of fiscal 2012 Catz said overall revenue is expected to grow between 10 and 13 percent, with new software license revenue increasing between 10 and 20 percent. Hardware sales in the quarter are expected to range between a 5 percent decrease and a 5 percent increase, Catz said.

Oracle continues to roll out its next-generation Fusion applications with "a number of customers" running Fusion accounting, human resource management and sales force automation applications, Ellison said.

And while Ellison did not rule out the possibility of Oracle acquiring other companies this year, he said company valuations are "wildly over-priced. They are, by and large, not attractively priced now and [acquisitions] don't make sense."

In the last decade Oracle has aggressively acquired dozens of companies including Sun, BEA Systems and PeopleSoft. But Ellison said Oracle has plenty of opportunities for organic growth at the moment.