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Oracle Succeeds in Software, Struggles in Hardware

Posted on Monday, Jun 25th 2012

Last week Gartner lowered growth projections for the enterprise software market because of worsening macroeconomic conditions. Worldwide spending on enterprise application software is projected to grow 4.5% over the year to $120.4 billion this year, compared with earlier estimates of 5% growth. The researcher expects enterprise resource planning (ERP) sales to remain the largest enterprise application software segment, with revenues of $24.9 billion this year. Sales of office suites will come in at $16.5 billion. Business intelligence revenues are projected to be worth $13 billion, and CRM revenues are expected to be more than $13 billion this year.

Oracle’s Financials
Meanwhile, Oracle (Nasdaq:ORCL) continued to outshine analyst expectations. Last week, the company announced its Q4 results, with revenues growing 1% over the year to $10.92 billion, marginally ahead of market estimates of $10.88 billion. EPS of $0.82 was also ahead of the market’s projected earnings of $0.78 for the quarter.

By segment, new software license sales grew 6.6% over the year to $3.98 billion. Software license update and product support revenues grew 4.8% to $4.15 billion. Database and middleware revenues grew 3.3% to $5.53 billion. Applications revenues climbed 11.2% to $2.6 billion and service revenues fell 3.7% to $1.20 billion.

Hardware sales remained disappointing, with revenues falling 13.8% over the year to $1.58 billion. Revenues from hardware systems products fell 15.6% over the year to $977.0 million, while revenues from hardware systems support were down 10.8% to $600 million.  Since the acquisition of Sun more than two years ago, Oracle has been struggling with hardware sales. The company expects that to change in the current year as customers begin to adopt Exadata, Exalogic, Exalytics, its core SPARC server product line, and fusion systems. I am not optimistic.

The company also announced the board approval of a $10 billion stock buyback program for the current year, which would help it control nearly 7% of its outstanding shares. During the past fiscal year, Oracle spent nearly $6 billion to buyback 207 million of its outstanding shares.

Oracle ended the year with revenues growing 4% to $37.1 billion. New software license revenues grew 7% over the year to $9.9 billion for the year. Software license updates and product support revenues grew 10% to $16.2 billion, and hardware systems products revenues were $3.8 billion. For the year, EPS grew 11% over the year to $2.46.

For the current quarter, Oracle projects revenues of $8.23 billion-$8.48 billion, with non-GAAP EPS of $0.51-$0.55. The market projects revenues of $8.47 billion with earnings of $0.53 per share.

Oracle’s Acquisitions
Oracle is continuing to build its product portfolio through acquisitions and in recent months has focused its efforts on the social network side. Early this month, it announced the acquisition of social media monitoring company Collective Intellect. Colorado-based Collective Intellect delivers cloud-based social intelligence technology solutions. Its offerings help organizations monitor and respond to consumer conversations on social platforms such as Facebook and Twitter. Oracle plans to leverage these offerings as part of its social platform solutions to help marketers create more targeted campaigns and generate leads more effectively.

In May 2012, it spent an estimated $300 million to acquire Virtue, a social media marketing firm that Oracle hopes will help it to make serious inroads in the Facebook marketing platform. Virtue’s tools helped marketers send out push messages on Facebook platform and manage their online presence on other networks such as Twitter, YouTube, and Pinterest, to name a few. Analysts believe that Virtue was on course to deliver annual revenues of $100 million this year.

Oracle was also in the news lately because of the rumored exit of longtime sales executive and North America sales head EVP Keith Block, after Block’s instant messages disapproving of Sun products were made public recently. The departure was confirmed last week and the market expected the stock to fall. However, Oracle’s strong results and continued growth plan saw the stock remain steady at $28, with a market capitalization of $138.60 billion. Year to date, the stock is uo 9%. However, it is still significantly lower than the July 2011 52-week high of $34.13.

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