By Stephen Phillips
Oracle Corp has bounced back from its lackluster first quarter, reporting second-quarter earnings that trumped analysts’ expectations by four cents a share. The number-two software vendor ascribed resurgent earnings for the three months to November 30 to a robust increase in software license sales and a company-wide cost-cutting drive kicking in. You ain’t seen nothing yet, chief executive officer Larry Ellison told reporters and analysts listening to yesterday’s earnings announcement.
Redwood City, California-based Oracle posted net income up 40% on the corresponding period last year to $384m or 26 cents a share. Analysts had on average projected earnings of 22 cents a share, according to financial pollster, First Call. Earnings stood at $2.3bn for the quarter, compared to $2.1bn in the year-ago. Oracle trumpeted 18% revenue growth from sales of it’s software licenses compared to the same quarter last year. Revenue from sales of the company’s trademark database software rose 17% to $651m, while applications software sales increased 31% to $168m. The company cited stand-out sales of its new customer relationship management applications, which notched a 300% increase on the year-ago to $49m for the quarter.
Sluggish revenue growth from software license sales were implicated in Oracle’s relatively disappointing first-quarter results. The company reported an 8% growth in license sales, compared to this quarter’s 18%, and CEO Ellison cited a failure to close deals as expected as a factor in pegging earnings back to the analyst consensus of 16 cents a share, which was below many unofficial projections circulated at the time. A decline in licensing deals worth more than $500,000 – to 30% of total deals compared to 36% a year earlier – was also blamed in the earlier quarter’s results. For the quarter to November 30 meanwhile, Oracle said it boosted its $500,000-plus deals to 36% as a proportion of the total. However this is still below the 40% share in the corresponding period last year.
Executives said the second quarter saw the first returns on its quest to slice $1bn off annual running costs. Oracle is steadily automating its global operations on its own e-business suite, comprising internet-based front and back office applications. The company said it has reduced its headcount by 5% over the last year. Meanwhile research and development expenses rose by 24% on the year ago to $248.1m, in line executives said with Oracle’s strategy to increase R&D investment alongside the drive to cost administration costs.
Revenue from services, comprising support and systems integration deals, increased 10% to $1.4bn. The company said revenue from its consulting business declined 4% on the year-ago, although it did not disclose the actual figure. Executives said this was the product of a concerted strategy to sub-contract these activities to partners to drive down costs. CEO Ellison said the Y2K bug was also a primer for this strategy as the company sought to minimize risk ahead of the millennium date change watershed. He added that Oracle was seeking to cultivate ties with the so-called Big Five consultancy businesses, whose endorsement, he said, had benefited ultra-successful CRM software vendor, Siebel Systems. Ellison said that businesses viewed companies such as Andersen Consulting as independent observers and that Oracle would push to be recommended by them.
