Oracle Posts 20% Growth in Q4

By Renee Boucher Ferguson  |  Posted 06-26-2007
Oracle reported a booming fourth quarter, with the company posting net income of $1.6 billion, or 31 cents per share, up from $1.3 billion or 24 cents per share for the same quarter a year ago.

During its earnings call June 26, Oracle said its profit and sales for the 2007 fiscal fourth quarter that ended May 31 jumped more than 20 percent in a period that is seasonally strong. Total revenues were $5.85 billion, up from $4.85 billion in the same quarter last year.

New license revenue—the number analysts look at to predict growth—was up 17 percent to $2.48 billion. Database and middleware new license revenue, up 18 percent, fared better than applications license revenue, which was up 13 percent.

CEO Larry Ellison pointed to the company's acquisition strategy—which differs markedly from SAP's organic growth strategy, he said—as the reason for the quarter's success. Oracle, based in Redwood Shores, Calif., has acquired nearly 30 companies in the past three years.

This past quarter alone, Oracle bought two companies and shares in another. In March, Oracle paid $3.3 billion to buy business intelligence software maker Hyperion, a deal that closed in April. In May, Oracle said it would pay PLM (product lifecycle management) vendor Agile Software for $495 million, in a deal expected to close in July, and it acquired a minority stake in Sophoi, an intellectual property management software company.

Click here to read why Oracle CEO Larry Ellison is convinced his company is on track to surpass SAP in the enterprise applications market.

The "buy versus build" strategy in the applications sector is one that will carry Oracle through a growth curve in the coming years, according to Ellison.

"We're looking at a number of deals in the coming quarter where the driver of the transaction was a vertical application," Ellison said. "When [customers] make a decision for one of our vertical applications, it greatly enhances our ability to sell other things. We think it will enhance our growth in years to come. And that's where we are going to enhance our vertical growth strategy, and we're going to do that through acquisitions. That's compared to SAP's strategy."

Oracle executives rarely, if ever, have a public discussion without bringing up SAP—or Microsoft, IBM and Salesforce.com, all of which were compared to Oracle's results in the fourth quarter call.

In Oracle's fierce rivalry with SAP, Oracle has employed a "surround SAP" strategy that boils down to buying a plethora of best-of-breed software vendors whose products SAP customers may use—transportation software from G-Log or PLM from Agile, for example— to get a foot in the door in SAP shops.

The goal, according to Ellison, is not to have SAP customers rip and replace their ERP (enterprise resource planning) implementations, but rather to look to Oracle to provide everything outside of ERP.

"Maybe if we all we had was HR, customers might consider" best of breed, Ellison said. "Now with G-Log, Hyperion, PeopleSoft, etc., it's very clear that [SAP customers] are not going to replace all those products [from SAP]. It's just not feasible. So customers are going to a two-vendor strategy and relying on Oracle, not SAP, to make all the pieces work together. …We form very good relationships and are now able to sell new applications to customers that wouldn't talk to us about new apps."

Read details here about Oracle's massive data theft and copyright infringement lawsuit against SAP.

There is a potential chink in Oracle's fourth-quarter earnings report. Application sales in North America—a key area for SAP as it looks to expand its business—look fairly weak compared with past years, according to an analyst who asked Oracle's executives during the earnings call Q&A session to characterize the fourth-quarter applications performance relative to past years.

"It's a very, very tough comparison," Ellison said. "The North American business had a complete blowout last year, plus a soft first quarter. We had spectacular growth a year ago and that was a tough comparison."

Ellison said he expects the applications business to grow in the coming year.

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