Oracle's Strong Earnings Credited to Services, Support

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Oracle's net income for the third quarter that ended February 28 rose 78 percent to US$2.1 billion over the same period last year, helped by strong software sales and an improving hardware business, the company said Thursday. Revenue for the quarter jumped 37 percent to $8.8 billion.

Revenue from new software license sales, which provide a key insight into a vendor's growth and how customers are feeling about IT spending, rose 29 percent to $2.2 billion year over year.

Software license updates and product support revenues, which provide steady income even as new license sales slow, rose 13 percent to $3.7 billion.

Hardware systems sales were $1 billion, down slightly from the second quarter's total of $1.1 billion. No comparison to the same quarter last year could be made, as Oracle only completed its purchase of Sun Microsystems on Jan. 27, 2010.

However, Oracle's "hardware product gross margins increased to 55 percent in the quarter so we are now completely confident that we will exceed the $1.5 billion profit goal we set for the overall Sun business for the current fiscal year," co-President Safra Catz said in a statement.

All geographic regions had revenue growth of 30 percent or more, with strong sales for the Exadata and Exalogic appliances, co-President Mark Hurd said in a statement.

Oracle also signed a number of large deals "with some of the biggest names in cloud computing," including, CEO Larry Ellison said in a statement.

"'s new multi-year contract enables them to continue building virtually all of their cloud services on top of the Oracle database and Oracle middleware," he added.

With the purchase of Sun Microsystems, Oracle has embarked on a strategy to sell customers on integrated systems spanning hardware and software, a la the IBM of old.

Oracle has been aggressively going after IBM as well as Hewlett-Packard, with the latest salvo being its decision, announced this week, to stop developing software for Intel's Itanium chips. HP's Integrity servers are based on Itanium processors.

The company of late is feeling its oats down to the salesperson level, one expert said in an interview Thursday, prior to the results' release.

Oracle has been "reacting in a lot more confident way when it comes to pricing and proposals to clients," said Eliot Arlo Colon, president of Miro Consulting, a Woodbridge, New Jersey, firm that helps companies negotiate licensing agreements with the vendor. "Clients who are waiting and holding out for a better deal are finding that next offer is no better, or a little worse."

Miro customers are buying hardware from Oracle, too. "Every client as part of the negotiation wants to have a hardware discussion," Colon said.

The company is seeing deals for Oracle's Exadata database machine "jump substantially," he added. "I don't know if anyone would have predicted it would take hold as quickly as it has," Colon added.

Miro knows of roughly 20 multimillion-dollar Exadata deals that have closed in the past 10 to 12 weeks, both for its own clients and others, Colon said. The firm has even added specialized staff to deal with Exadata-related sales.

Oracle is known for giving significant discounts on software licenses' list price. However, "they're a lot tighter on Exadata than on their other products," Colon said.

But Miro is not hearing a buzz about Oracle's second integrated system, the application server Exalogic, apart from the company's own marketing presentations, he added.

However, early signs for Exalogic, which was announced at September's OpenWorld conference, are "as encouraging as Exadata," Hurd said during a conference call on Thursday.

The reasons for Exadata's success are obvious, according to Hurd. "Listen ... it's just good stuff. ... You can get a material change in performance [and] a single point of accountability for service and support, and we'll save you money while you do it," he said.

Still, Exadata will face serious competition in the months ahead from the likes of Teradata, SAP's new HANA in-memory database appliances, and HP, which recently bought analytic data warehousing vendor Vertica.

At one point during the conference call, talk turned to the ongoing crisis in earthquake-wracked Japan. The country's troubles have not affected Oracle's hardware supply chain, according to Catz.

Meanwhile, those hoping for a traditional dose of competitive trash talk from Ellison on Thursday had to be satisfied with the CEO's prepared statements.

Ellison was not able to attend the conference call due to jury duty obligations, according to Catz. Oracle executives did not discuss the matter further.

If Ellison had been on the call, he may have discussed a topic that received scant attention: Oracle's long-awaited Fusion Applications, which are set for release this year.

Fusion Applications, which wrap the best attributes of Oracle's various ERP (enterprise resource planning) software lines into a next-generation suite, are expected to be showcased heavily later this year at OpenWorld.

Oracle has consistently positioned Fusion Applications as something that customers can consume in a modular fashion, with no need to rip out and replace existing systems.

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