Oracle Records First-Ever $10 Billion Quarter

Oracle posted its first $10 billion quarter this week when it reported earnings for its fiscal 2011 fourth quarter, although hardware sales were disappointing. Sparc hardware, acquired with Sun Microsystems in 2010, has been a target for growth in 2011. It contributed $1.2 billion of the total in the fourth quarter but declined 6% over the same period a year ago.

Oracle had been building toward a $10 billion quarter all year, with total revenues coming in at $7.5 billion in the first quarter, $8.6 billion in the second and $8.8 billion in the third. Oracle's fourth quarter is the one in which it performs some of its steepest discounting to close sales and reach numbers targeted for the year.

But the figures show that Oracle's application software, middleware, and enterprise database business are pulling out of the recession and gaining strength. Total revenues were $10.8 billion in the quarter, up 13% over the same period a year ago. New software license revenue, while not the biggest component of the total, demonstrated the largest growth, up 19% to $3.7 billion. Oracle's mainstream revenue is its software update and support, which were up 15% and yielded $4 billion.

Operating income was up 32% to $4.4 billion, according to generally accepted accounting principles, thanks in part to the completion of the Sun deal last year, which cost Oracle $100 million in closing costs in its fiscal 2010 fourth quarter. Oracles GAAP operating margin was 40%, while GAAP net income was up 36% to $3.2 billion.

Earnings per share in the quarter were 62 cents, up 34% compared to the same period the year before.

Oracle CEO Larry Ellison and co-presidents Safra Catz and Mark Hurd were all on the earnings call announcing the results Thursday, a task often fielded by Catz by herself. They noted an improvement in sales efficiency and the addition of more than 800 new hires to the pre-sales and sales roles. They are committed to continue to expand the sales force in pursuit of a larger share of the total amount spent on software by Oracle customers.

"It was a margin game for Oracle in FY 4Q11--and the company won big," wrote Elizabeth Henlin, an analyst at Technology Business Research, in a commentary on the quarter. "These results more than deliver on Oracle's commitments in recent quarters (particularly after the Sun acquisition) to run a profitable business," she said.

Results for the year showed Oracle's core business customers climbing out of the effects of the recession and resuming spending. Total revenues were up 33% to $35.6 billion. New software license revenues increased 23% to $9.2 billion. Software license updates and support were up 13% to $14.8 billion. Hardware system revenues were $4.4 billion. Ellison announced at the start of the year that he expected Oracle to sell $1 billion in hardware in the first quarter, and the firm stuck close to that objective through successive quarters, even as software sales grew strongly.

Operating income for the year was up 33% to $12 billion, while operating margins were 34%. GAAP net income was up 39% to $8.5 billion and GAAP earnings per share were up 33% to $2.22.

"In addition to record setting software sales, our Exadata and Exalogic systems also make a strong contribution to our growth in Q4," said Oracle President Mark Hurd. With 1,000 Exadata machines installed worldwide, Oracle plans to triple the number in fiscal 2012, he said in the announcement.

"In FY11, Oracle's database business experienced its fastest growth in a decade," said Ellison. "Over the past few years, we added features to the Oracle database for both cloud computing and in-memory databases that led to increased sales. Lately we've been focused on the big business opportunity present by Big Data," he said.

Catz termed the results "strong organic growth ... with almost no help from acquisitions."

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