Yesterday evening, after the markets closed on Wall Street, Oracle released the results of its third quarter. The quarter, which closed at the end of February 2009, had been expected by many to be a poor one driven down by recession-fuelled demand reduction and adverse currency effects. In reality the quarter was stronger than anticipated, despite those economic challenges. Oracle now heads into the important fourth quarter and year that will be very significant for it, as many of the efforts of Project Fusion come out for public scrutiny.
Oracle shows signs of bucking the economic trend
In the weeks leading up to the release of these results many had expected Oracle to post very bad figures. Some had even speculated that this would be one of the worst quarters for over a decade. They were wrong. Oracle grew total GAAP revenues 2% to $5.5 billion for the quarter, with net income suffering slightly down 1%. The crucial information around new licence sales, a barometer of future and highly profitable support and maintenance revenues, was that there was a slowdown of 6% to $1.5 billion. However, the support and maintenance revenues continued to show strong growth up 11% to $2.9 billion for the quarter. In the services portfolio, the On Demand business was the real positive highlight, showing year-on-year growth from $174 million in the third quarter of last year to $191 this quarter.
All of this was despite a strong dollar, which brought non-GAAP EPS down to a 3% growth, when the figure would have been shown a 29% growth. The growth of the On Demand business and the continued expansion of the subscriptions paid for support and maintenance, including product updates, is a demonstration of the continued industry drift towards annuity-based models. While not traditionally considered to be an exemplar of this model, the financial structure of Oracle is showing many of the same characteristics as the pure-play software-as-a-service model and generated $8 billion in free cash flow to boot.
Applications Unlimited has held the ship steady despite the economic climate
The continued financial strength of Oracle makes it easy to overlook the fact that the company has made nearly 50 acquisitions in the past four years, and has started Project Fusion to bring the best elements of the portfolio together as foundations for the next generation of products built on a modern standards-based architecture, with greater flexibility and manageability than the previous generation. That alone could have produced a stalling of revenue growth, as customers waited until the future product path became crystal clear never mind the impact of a recession in the major markets around the world. However, the counter that Oracle produced through Applications Unlimited, and related programmes, certainly seems to have calmed potentially nervous customers and has given greater certainty and continuity of revenues than many predicted.
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