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Oracle profit jumps 8 percent, though hardware sales decline

The company sold $4 billion worth of new software licenses during the quarter

By Chris Kanaracus, James Niccolai
June 18, 2012 08:04 PM ET

IDG News Service - Profits at Oracle climbed 8 percent in the quarter just ended, though hardware sales declined and overall revenue was up only slightly, the company said Monday.

Oracle's net profit for the quarter, the fourth of its fiscal year, was US$3.5 billion, or $0.69 per share, the company said in its announcement, which was originally scheduled to occur Thursday.

Revenue came in at $10.9 billion, an increase of 1 percent from a year earlier. Sales of new software licenses increased 7 percent to $4.0 billion, while software license updates and support revenue climbed 5 percent to $4.2 billion.

New software license sales are considered a key indicator of growth and market health, as they suggest IT organizations are starting new projects. However, Oracle's aggressive acquisition strategy helps ensure the number keeps rising.

Sales of Oracle hardware, including the Unix systems business it acquired when it bought Sun Microsystems, were down 16 percent to $997 million, Oracle said.

For the full year, revenue was up 4 percent to $37.1 billion and profits were up 17 percent to $10 billion.

Market watchers have been closely monitoring the performance of Oracle's hardware division since it completed the Sun acquisition in January 2010.

Oracle has been de-emphasizing low-margin commodity hardware sales. The results show that its strategy of focusing on high-end machines such as Exadata and Exalytics, which combine Sun servers with Oracle software, is working well, executives said during a conference call Monday.

Sales of these "engineered systems" more than doubled year over year, according to co-President Mark Hurd. "I think what we saw in Q4 was some pretty material movements in terms of existing customers buying many more," Hurd said.

Revenue from the "Exa" systems will increase as companies see their performance, according to CEO Larry Ellison. "While the systems are very, very fast right now, they're getting even faster," he said.

This creates two opportunities for Oracle, Ellison said. Oracle can reach "the number-one position in high-end systems," he said. But because the Exa systems are x86-based, they offer good cost-to-performance and will help Oracle take share from its rivals' commodity server businesses as well, he said.

What Ellison didn't note is that much of the total cost of these systems lies in the substantial software license fees and annual maintenance revenue streams those licenses generate for Oracle.

There are some mitigating factors, in that customers are able to move existing licenses to the high-end machines, and Oracle is known for its aggressive discounting off list price for software.

Oracle's applications business also came up during the call. The results were fairly uniform, according to Hurd. "There was no single region, there was no single deal," he said. "[There was] strength in CRM, strength in ERP, strength in HCM. That includes Europe."

Reprinted with permission from IDG.net. Story copyright 2014 International Data Group. All rights reserved.
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