Oracle Says Apps Business Is Brisk

The Redwood Shores, Calif., software vendor’s license revenue for applications totaled $269 million in the third quarter, up 77 percent year over year, compared with 18 percent growth in rival SAP’s most recent quarter, Oracle Co-President and CFO Safra Catz told financial analysts in an earnings call Monday.

"Applications came in very strong across the board," Catz said.

Total sales for Oracle’s fiscal third quarter ended Feb. 28 came in at $3.47 billion, an 18 percent year-over-year increase. Third-quarter earnings were $765 million, or 14 cents per diluted share, compared with $540 million, or 10 cents per diluted share, a year earlier.

Siebel Systems and its CRM offering, which officially became part of Oracle's applications stable Feb. 1, contributed about $22 million in licensing sales, exceeding expectations, according to Catz. Even excluding Siebel, the applications business did well, garnering $247 million in revenue, a 63 percent year-over-year gain, she added.

Oracle is in the midst of digesting Siebel as well as its $10 billion-plus acquisition of PeopleSoft/JD Edwards last year.

Database revenue was less perky, with database and middleware license sales up just 5 percent. Yet Catz said middleware revenue rose 24 percent in the Americas, which outpaced rival BEA Systems' growth.

"Our apps business is growing faster than SAP’s, our middleware is growing faster than BEA’s and we continue to take database share from IBM," Catz said.

She also acknowledged the importance of software renewal revenue, which she characterized as "very stable and high-margin." Renewal sales climbed 15 percent year over year and now represent half of total revenue," she said.

Wall Street is watching that figure very closely. "While much has been discussed about Oracle's future application integration plans, the company's engine is maintenance revenue. Having reshaped the applications market, all current efforts are focused on deepening Oracle's share of the customer's wallet," Technology Business Research analyst Stuart Williams said in a market report.

In that battle, however, Oracle faces competitors such as TomorrowNow, which offers discounted maintenance on Oracle technology. Over time, that could force Oracle to work harder to justify its pricey support and maintenance. Oracle support runs at about 22 percent of the license cost annually.

Also on the call, Oracle CEO Larry Ellison banged the drum for Oracle's new enterprise search offering, which he cast as a way to spur database and infrastructure sales. Oracle’s database growth rate, assuming no currency changes, was actually 9 percent, he noted. "Our database target was low double-digit growth, long term. We don't think we're that far off. Secure enterprise search may be a real catalyst," Ellison said.

The search offering, which costs $30,000 per CPU, promises to bring Google-like search to corporate data. "If your company has 300 databases and 200 Exchange servers and uncountable Microsoft file servers, we set up a separate Oracle database with crawlers--very Googlelike, but they search only your stuff,” Ellison said. “The crawlers index all that information and put those indices on an Oracle database."

For the fourth quarter, Oracle forecasts new software license revenue to grow 8 percent to 18 percent year over year, down from 7 percent to 17 percent growth in guidance given last quarter, Catz said. Total software sales are expected to rise 10 percent to 15 percent, as previously predicted, and earnings are expected to increase 4 percent to 11 percent.

Non-GAAP earnings are expected to be in the range of 26 cents to 28 cents per share. GAAP earnings are forecast at 21 cents to 23 cents per share.