Oracle shows sales and earnings growth

Database revenue up, applications revenue down

Oracle reported revenue and earnings growth in its latest quarter, with its revenue from new software licenses rising 7% from last year to $US563 million. However, revenue from its applications business, which includes the ERP E-Business Suite, was down significantly.

Oracle posted revenue of $2.22 billion for the quarter ended August 31, up 7% from last year's first quarter. Net income was $509 million, up 16% from last year, as the company continued to post higher margins than it has in the past. Chief financial officer Harry You said Oracle's 12-month operating income of $4 billion and operating margin of 38.5% were all-time highs.

Net income per share was $0.10, above the $0.09 consensus estimate of analysts polled by Thomson First Call. Revenue was slightly below analysts' $2.23 billion mean estimate.

Oracle's general and administrative expenses grew sharply over last year as it spent $28.5 million on its campaign to acquire PeopleSoft. While Oracle's sales and marketing, product support, research and development and administrative costs all rose, it kept its total operating expenses nearly flat by trimming its services costs by 5%, saving $23 million.

Core database sales drove Oracle's software sales growth and Oracle president Charles Phillips said Oracle's advantage over rivals in that market is clear: "We have grid, they don't." Growing industry interest in deploying distributed computing platforms is driving sales of Oracle's grid-enabling database technology, he said.

Sales of new licenses for applications plunged from last year's first quarter, however, falling to $69 million, a 36% decline. Oracle's total applications revenue, including support and services, fell 9% to $497 million.

On a conference call with analysts, Phillips and other Oracle executives downplayed the seriousness of the applications sales drop. You, who joined Oracle two months ago from Accenture, said the company was unhappy with the applications results but expects growth in later quarters. Phillips said Oracle is restructuring its applications sales group, creating a dedicated sales force in each geographic region. It is also rolling out a major update of its E-Business Suite, version 11i10, that Phillips expects to spark sales growth.

Oracle's services group also showed declines, as services revenue fell 7% to $476 million and consulting revenue slipped 11%. Those declines, however, were expected, and will probably continue throughout the fiscal year, You said. Oracle, along with its customer companies, is increasingly tapping lower cost labour in developing countries for IT services work, and its billing rates are lower for those consultants, he said. He also said Oracle's increasing reliance on outside partners has reduced its services revenue.

Oracle's trend toward hiring in developing countries is evident in its headcount numbers. Its US headcount fell, as it did every quarter last year, to 16,500 - about 1000 fewer US workers than Oracle had at the end of last year's first quarter. However, its international headcount grew by nearly 3000, raising Oracle's total employee roster to 42,100.

You said Oracle is optimistic about its growth for the rest of its 2005 fiscal year. "We appear to have powered through a lull in the economy," he said. "The software industry (trend) is the strong becoming stronger and the weak becoming weaker and less relevant to the market."

Executives briefly addressed Oracle's ongoing campaign to win control of PeopleSoft through a hostile, $7.7 billion tender offer to PeopleSoft's shareholders. Oracle has been given the go-ahead to go after PeopleSoft in the US (subject to a possible appeal by the Justice Department) but still faces two major hurdles: Winning approval of the deal from the European Commission, and the repeal of PeopleSoft's "poison pill," an anti-takeover provision in PeopleSoft's bylaws.

Oracle chief executive Larry Ellison skipped Tuesday's earnings conference call and Oracle Chairman Jeff Henley said Ellison plans to leave future earnings calls in the hands of other Oracle executives.

Oracle significantly shuffled its formerly centralised management earlier this year when Ellison handed over the chairman position to former CFO Henley and promoted Safra Catz and Charles Phillips to company presidents.

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