Oracle Tops Estimates, Execs Come Out Swinging

Oracle earnings

Oracle (NASDAQ: ORCL) topped Wall Street expectations for its fourth quarter, shrugging off the persistent economic malaise gripping the IT industry to post impressive numbers.

The company reported earnings after charges of $1.9 billion, or $0.38 per share, a drop of 7 percent from last year. Earnings before charges declined only 1 percent to $0.46 per share, beating analysts’ estimates of $0.44 per share, according to Reuters Estimates.

Quarterly revenues dropped 5 percent to $6.9 billion, although Oracle said that figure includes some good news: an 8 percent increase in software license updates and product support revenues — a key metric for the company.

Full-year fiscal 2009 earnings rose 1 percent to $5.6 billion, or $1.09 per share after charges. Revenue totaled $23.3 billion, a 4 percent increase from a year earlier.

Oracle said its strong figures came in spite of the strength of the U.S. dollar and the slowdown in IT spending.

“Adjusted for the substantial movement in the U.S. dollar exchange rate this fiscal year, which is beyond our control, we grew non-GAAP [Generally Accepted Accounting Principles] earnings per share by 19 percent for the year,” Oracle President Safra Catz said in a statement. “That’s an amazing achievement given what’s been happening in the
global economy over the past twelve months.”

She said that the company is forecasting first-quarter earnings of $0.29 to $0.31 per share before charges at current exchange rates, and earnings of $0.21 to $0.22 per share after charges at current exchange rates.

The company said that ignoring the effect of the reduced value of foreign currencies, Oracle’s fourth quarter would have seen a 9 percent increase in earnings over least year — $0.42 per share.

“We achieved the highest Q4 operating margin in our history,” Catz said, pointing to non-GAAP operating margins of 51 percent.

During Oracle’s earnings conference call today, she added that the high operating margin is due to Oracle’s large installed base and not due to trimming expenses.

“We continue to invest aggressively,” Catz said. “We’re up to $3 billion in R&D alone, outshining our competitors. We are not a cost-cutting story; we are a profitability story. As our install base grows, our margins will grow, although the Sun acquisition will change the margin story for a time.”

Oracle claims victories

The company also came out swinging against enterprise software competitor — and sometime lawsuit opponent — SAP.

“We grew faster and took market share from SAP in every region around the world,” Oracle President Charles Phillips said in a statement. “In Europe, our applications business grew 5 percent in constant currency versus negative 27 percent growth for SAP in their most recent quarter. Historically, Europe has been an SAP stronghold, but these results prove that we can compete and beat them everywhere.”

The company also challenged database competitor Teradata.

“The Exadata Database Machine is well on its way to being the most successful new product launch in Oracle’s 30-year history,” Oracle CEO Larry Ellison said in a statement. “Several of Teradata’s largest customers are performance-testing — then buying — Oracle Exadata Database Machines.”

Ellison added during the call that Exadata is also winning customers from IBM’s DB2 and Netezza, which he characterized as tied behind Teradata in market share.

Page 2: Shots at IBM and Salesforce, and completing the stack with Sun

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Also during today’s call, Phillips said that Oracle’s Fusion middleware beat IBM WebSphere for several key customers, including Visa, and added that the company’s business intelligence product has seen several wins over IBM’s (NYSE: IBM) Cognos.

In the financial vertical, he added, Oracle is diversifying outside the United State, and with the win of the National Bank of Egypt, it now has 70 percent of the Egyptian banking market.

“Verticals like banking are doing well as SAP customers are returning to Oracle,” he said.

With Sun, Oracle expects to complete the stack

Oracle executives said they would not talk about the pending acquisition of Sun — but proceeded to drop broad hints about Oracle’s strategy for Sun, especially in hardware.

“Our customers know we’ll make it all work together at the factory,” Phillips said during today’s call. “They’re excited, if Exadata is any indication of the power of hardware and software integration.”

Ellison added that Exadata “ran about 100 times faster in some cases than in a standard Oracle environment.”

“With Exadata, we’re looking for a 10, 15, 100 times performance improvement,” he said. “We’ve thrown more CPUs in huge numbers, InfiniBand , and large memory caches at the problem. We’re looking for orders of magnitude improvements like flash memory.”

Ellison also said that the company wants to build a fully integrated product.

“Our goal is to deliver a complete stack, starting with the VM and OS,” he said during the call. “With Xen, the Linux operating system, and Oracle’s database, middleware, and applications, we will deliver a complete and integrated stack — and with the Sun acquisition, we’ll go down into the hardware.”

The company believes that those that offer integrated products have an advantage. “Cost pressures and increasing complexity are acting as a catalyst, causing customers to introduce integrated products in place of bespoke applications,” Phillips said.

Aiming to be No. 1

Ellison even talked trash in the Software-as-a-Service (SaaS) market, taking some shots at rival Salesforce.com (NYSE: CRM).

“Salesforce is only a $1 billion company,” he said. “We’re the second-largest provider of on-demand services and we offer a model that Salesforce does not offer. We offer single tenancy in your datacenter where we provide upgrade services and administer the application. It’s a significant differentiator with Salesforce and when we’ve gone up against them, we’ve won virtually every one.”

“We think we can be the No. 1 application company, the No. 1 on-premises software company, and the No. 1 on-demand company,” he added. “That’s our goal. Our Fusion applications are code-complete and all are on-demand ready. They’re available on-premises but also designed from the ground up to be SaaS.”

Oracle’s next major product launch is next week, according to Phillips, who said the company will launch Oracle Fusion Middleware 11g in Washington, D.C. and several other cities. The product is currently in previews.

Update adds comments from the earnings call.

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