Oracle Reports Slow Growth In Q3 Application Sales

During a conference call with Wall Street analysts Oracle executives said that closing big contracts, especially for the vendor's application software products, became more difficult as customers took longer to review planned purchases. "Deals seem to be taking a little bit longer," Safra Catz, Oracle president and CFO, said.

Sales of new licenses for the company's application software grew only 7 percent in the quarter to $451 million -- a marked slowdown from their 57 percent sales growth in the same quarter one year ago. One analyst on the call said it was Oracle's weakest quarter in four years in application sales growth.

A report from Technology Business Research noted that nearly 18 percent of the new license sales came from recent acquisitions Hyperion and Agile ($67 million and $14 million, respectively) and that total new license revenue minus those acquisitions actually declined year-over-year more than 12 percent.

Sales of database and middleware software remained comparatively healthy with new license revenue from those products increasing 20 percent to $1.2 billion, compared with 17 percent growth in last year's third quarter.

Projects that involve applications tend to be larger and so those contracts were the most likely to be delayed, said president Charles Phillips. He and Catz emphasized that the number of pending deals in the company's sales pipeline has increased and most of the delayed contracts are likely to close in the current quarter.

"I think in the context of the tough economy we delivered a good quarter," Phillips said. "We've been through this before and we know how to adjust to it. It's an environment that favors large, stable suppliers that already have broad geographic coverage."

CEO Larry Ellison also noted that the 57 percent growth in application sales in last year's third quarter made year-to-year comparisons tough.

For the three months ended Feb. 29 Oracle, of Redwood Shores, Calif., reported total sales of $5.35 billion, up 21 percent from the same period a year earlier, and a 30 percent gain in earnings to $1.34 billion.

Total software sales increased 21 percent year-over-year to $4.2 billion. The new software license revenue portion of that total, a key growth indicator, increased 16 percent to $1.6 billion. Software license updates and product support revenue increased 25 percent year-over-year to $2.6 billion and service revenue gained 21 percent to $1.1 billion during the quarter.

For the current quarter Oracle expects sales to increase between 15 and 19 percent year-over-year on a GAAP (generally accepted accounting principles) basis and new software license revenue to grow between 10 and 20 percent, Catz said.