Oracle Q4 profits up 10%; revenue flat

Hardware revenue continues to slide as cloud software revenue jumps 50%, according to Oracle

Oracle's fourth-quarter revenue was flat at $10.9 billion, while profits rose 10% $3.8 billion, as the company reported strong growth in sales of software as a service (SaaS) subscriptions and "engineered systems" like Exadata.

But overall hardware revenue continued to slide, falling 9% to $1.43 billion, according to Oracle's announcement on Thursday.

Since buying Sun Microsystems, Oracle has emphasized that it is focused on higher-margin systems like Exadata, and not interested in competing with other companies in the commodity server market.

"Exadata, Exalogic, Exalytics, SPARC SuperCluster and our other engineered systems grew at a rate of 45% in Q4," Oracle CEO Larry Ellison said in a statement. "We sold over 1,200 engineered systems in the quarter and over 3,000 during the year." Half of those 1,200 systems were Exadata and another 100 were its newer Exalytics system, Ellison said in a conference call.

The Oracle CEO stepped up his rhetoric against SAP's HANA in-memory database. Some of SAP's biggest customers bought Exadata rather than HANA, according to Ellison. "We don't think HANA can ever compete with Exadata" and Oracle's other high-performance systems, he said.

SAP was quick to respond. "These boasts are about as credible as Oracle's promises about its hardware business over the past years," SAP spokesman James Dever said via email. "It's a weak attempt to distract from the ongoing lack of growth."

Engineered systems now represent more than a third of Oracle's hardware business, which is one of the reasons the company believes hardware will be "a growth story" in its 2014 fiscal year, according to Ellison. If Oracle's recently refreshed line of Sparc-based servers "shows just a little bit of growth, the growth in hardware will be spectacular," he said.

Meanwhile, new software licenses and cloud software subscriptions rose 1% to $4 billion. SaaS represents only a small portion of that total, but had a year-over-year growth rate of 50%, according to Oracle.

"Oracle's HCM Cloud, CRM Cloud and ERP Cloud grew 50% as we added over 500 new SaaS customers in Q4 alone," Oracle President Mark Hurd said in a statement. "Our annualized SaaS revenue run rate is over $1 billion," Hurd added.

Among those wins were some 200 buyers of Oracle's "customer experience" software, including Sprint Nextel, Dow Corning, Acer and Tesco, Hurd said during the conference call.

Software license updates and product support revenues, otherwise known as maintenance fees, grew 6% to $4.4 billion. Maintenance revenue is the lifeblood of software vendors, carrying hefty profit margins and ensuring that money rolls in each year even if customers aren't buying new application licenses.

For the full fiscal 2013, Oracle posted $37.2 billion in revenue, which was also flat compared to the previous year, while net income rose 9% to $10.9 billion.

Oracle saw new software license and cloud subscription revenue growth in all regions in the fourth quarter except for Asia-Pacific, where it fell 12% to $608 million. For the full year, software revenue fell 1% in Asia-Pacific to $1.9 billion.

Companies in that region were affected by economic issues beyond Oracle's control "that came up right at the end on us," hurting results, CFO Safra Catz said.

"When we saw weakness we saw weakness in all of our software lines," Ellison added. "It was clearly an economic issue, not a product competitiveness issue."

Oracle watchers should stay tuned next week when the company will make a series of "startling" announcements concerning partners and Oracle's upcoming Database 12c, according to Ellison.

Chris Kanaracus covers enterprise software and general technology breaking news for The IDG News Service. Chris' email address is Chris_Kanaracus@idg.com

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