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3/24/2011
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Oracle Reports 37% Revenue Growth

Software revenue increased 19% from a year ago, reaching $6 billion, and gross margins for the hardware business Oracle acquired when it bought Sun Microsystems reached 55% in the most recent quarter.

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Oracle has reported that net income rose 78% in the fiscal third quarter, due to strong sales of both its traditional software and the hardware it acquired in the purchase of Sun Microsystems more than a year ago.

The company said Thursday that profit for the quarter ended February 28 increased to $2.1 billion, or 42 cents a share, from $1.2 billion, or 24 cents a share, the same period a year ago. Revenue grew 37% year to year to $8.8 billion from $6.4 billion, with sales increasing 30% or more in every region of the globe.

Total software revenues, which include the company's core database software, business applications, and middleware, increased 19% to $6 billion. Revenue from new software licenses, considered a key metric for a software company, rose 29% to $2.2 billion.

Revenue from hardware, a market Oracle leapt into in January 2010 with the Sun acquisition, almost tripled to $1.7 billion. With gross margins on hardware reaching 55% in the quarter, Oracle co-president Safra Catz says the company is "completely confident" that its Sun business will exceed the $1.5 billion profit goal Oracle has set for the current fiscal year.

Oracle's hardware success was reflected in sales of its Exadata and Exalogic appliances, which provide tight integration between Oracle database software and business applications, respectively, and Sun hardware. Revenue from the two appliances grew more than 50% from the second fiscal quarter, "and we expect to see an even higher growth rate for these two game-changing technologies," Oracle co-president Mark Hurd said in a statement.

During a teleconference, Hurd told financial analysts that the company is seeing equally strong customer interest in Exalogic and Exadata. "I don't know how else to say this to you," Hurd says. "It's just good stuff. There's no secret here. The stuff works."

Strong sales of the two products mean Oracle will likely benefit from future upgrades. That's because the highly proprietary infrastructure products make it difficult for customers to move away from, analysts say. Both appliances are targeted at large companies, not small and midsize businesses.

Oracle's strong sales performance drove its operating margin to 34% from 29% a year ago. Catz told analysts that the company expected to go even higher and could exceed the level the company had when it was only a software business. Software in general carries much higher margins than hardware.

"We think it's actually going to continue to go up," Catz says. "It will obviously be higher than last year's Q4 and actually, we don't see it topping out yet or even close. I think we've got quite a few more points to go."

Hurd said the company added 1,500 people to its sales unit in the last year and is looking to hire more to add new customers and to sell more products to current customers. "The best place to get the second order is the place you got the first," Hurd said.

Oracle chief executive Larry Ellison, who often participates in conference calls, was absent because of jury duty, executives said.

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