Should Oracle Buy Into Services?

Oracle’s earnings results were a bright spot in at the end of a chaotic week for the financial sector. After dipping to $18.10 during the week, helped by the company’s positive performance and the Fed’s bailout decisions, the stock soared to $21. However, it could be hit hard by a stronger dollar.

On Thursday, Oracle Corporation (NASDAQ:ORCL) reported Q109 revenues of $5.3 billion, up 18%. GAAP net income was up 28% to $1.1 billion. Operating margin was up 170 basis points to 29%. Non-GAAP EPS was up 32% to $0.29, versus Wall Street’s estimate of $0.27. In Q1, the company bought back shares for about $500 million.

By segment, Services revenues were up 9% to $1.2 billion. Total software revenues were up 20% to $4.2 billion with new software license revenues up 14% to $1.2 billion. Software license updates and product support revenues were up 23% to $2.9 billion. Technology license business revenues grew 27%, versus 23% in Q108 and Q408. Core database software revenues grew 21%, while new middleware licenses rose 35%. Applications license revenues, however, were the weak spot, declining 12% to $331 million, mainly due to 65% applications growth last year. Analysts were expecting $416 million in applications license revenues.

Applications revenues were $1.37 billion while database and middleware revenues were $2.8 billion. As per Gartner, Oracle has increased its market share in database to 49% while in middleware, with the help of the BEA (BEAS) acquisition, it has grown 35% and is getting closer to overtaking No.1 IBM (IBM). 

By region, revenues from the Americas increased 13% to $2.68 billion, EMEA was up 19.6% to $1.83 billion, and Asia Pacific was up 30% to $814 million.

For the second quarter, Oracle expects revenues to be negatively affected by the recovering dollar. Revenues are expected to grow 12 to 15% in constant currency ($6.01 to $6.17 billion) and 9 to 12% at current rates ($5.85 to $6.1 billion). In 2007, the weak dollar had a 7% positive impact on revenues while a stronger dollar would have had a negative 3% impact.

I will close with one thought: should Oracle buy a services company to compete with IBM Global Services going forward?

Disclosure: None

Comments

[Freemoney F...:]

Great job ORACLE!! ..Hopefully, the market will reward well-run businesses!!

If the bail-out plan passes, Oracle should reap net positive benefits from betwwen 4% to 7% next reporting period, because the dollar should and will weaken, because of the debt(estimated 700 billion dollars or more) that will be needed to stable the American financial system over the next 3 to 5 years!

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2008 Sep 23 08:09 AM