Should Oracle Buy Into Services?

Oracle’s earnings results were a bright spot in at the end of a chaotic week for the financial sector. After dipping to $18.10 in the week, the stock soared to $21, helped by the company’s positive performance and the Fed’s bailout decisions. However, it could be hit hard by a stronger dollar.

Oracle Corporation (NASDAQ:ORCL) on Thursday reported Q109 revenues of $5.3 billion, up 18%. GAAP net income was up 28% to $1.1 billion. Operating margin was up 170 basis points to 29%. Non-GAAP EPS was up 32% to $0.29, versus Wall Street’s estimate of $0.27. In Q1, the company bought back shares for about $500 million.

By segment, Services revenues were up 9% to $1.2 billion. Total software revenues were up 20% to $4.2 billion with new software license revenues up 14% to $1.2 billion. Software license updates and product support revenues were up 23% to $2.9 billion. Technology license business revenues grew 27%, versus 23% in Q108 and Q408. Core database software revenues grew 21%, while new middleware licenses rose 35%. Applications license revenues, however, were the weak spot, declining 12% to $331 million, mainly due to 65% applications growth last year. Analysts were expecting $416 million in applications license revenues.

Applications revenues were $1.37 billion while database and middleware revenues were $2.8 billion. As per Gartner, Oracle has increased its market share in database to 49% while in middleware, with the help of the BEA acquisition, it has grown 35% and is getting closer to overtaking No.1 IBM. 

By region, revenues from the Americas increased 13% to $2.68 billion, EMEA was up 19.6% to $1.83 billion, and Asia Pacific was up 30% to $814 million.

For the second quarter, Oracle expects revenues to be negatively affected by the recovering dollar. Revenues are expected to grow 12 to 15% in constant currency ($6.01 to $6.17 billion) and 9 to 12% at current rates ($5.85 to $6.1 billion). In 2007, the weak dollar had a 7% positive impact on revenues while a stronger dollar would have had a negative 3% impact.

I will close with one thought: should Oracle buy a services company to compete with IBM Global Services going forward?