Oracle Earnings Slump Along with Economy

Earlier this spring, Oracle CEO Larry Ellison said he did not foresee economic improvement during the next three months. He was not kidding. Oracle reported revenue of US$9.7 billion for its fiscal year ended May 31st, down considerably from the $10.9 billion recorded last year.

In the company’s fiscal fourth quarter, revenue totaled $2.8 billion, a dip from the approximately $3.3 billion reaped during the same quarter a year ago.

While Ellison previously had predicted the recession would end earlier this year, he admitted in the spring that he had missed the mark. Ellison blamed the continued decline on tight-fisted enterprise spending habits during the economic slump.

Bid for Customers

“Businesses are still being very cautious with their capital spending,” Ellison told conference-goers at the AppsWorld 2002 conference in San Diego, California, explaining that his company has moved to slash software prices and offer fixed prices on certain services to attract customers.

In fact, a survey by Forrester Research noted that 2002 budgets for e-business technologies dropped to an average of $29 million in 2002 from $41 million in 2001.

The survey of 3,500 global firms found that 23 percent fewer firms said they will consider purchasing server, networking and storage hardware this year compared with last year.

Licensed To Spend

Oracle reported fourth-quarter net income of $760 million, or 14 cents per share, down from last year’s 15 cents per share. Those figures excluded an impairment charge related to Oracle’s investment in Liberate Technologies. Including the charge, net income in this year’s fourth quarter was $656 million, or 12 cents per share.

During the fourth quarter, Oracle’s operating margin hit 44 percent — up from 39 percent in the year-ago period.

New software license sales accounted for $1.15 billion in revenue, and software license update sales came in at $643 million. Oracle also reported $385 million in product support revenue and $487 million in consulting revenue. Other revenue sources accounted for the remaining $109 million.

Database Debate

Ellison said the company’s database business is continuing to perform well and has never been stronger. He called the database sector “the foundation of our software business.”

According to the often-controversial Oracle CEO, “The latest database user surveys confirm that Oracle is the database used with 72 to 81 percent of enterprise applications among Fortune 100 companies.”

But in May, Oracle hotly contested a Gartner Dataquest report that awarded the database crown to archrival IBM.Dataquest said IBM held 34.6 percent of the market after its purchase of Informix, compared with Oracle’s 32 percent. According to the report, Oracle lost 2.1 percent of total database market share in 2001.

Oracle challenged assumptions that it is losing market share to competitors, given that a review of “independent research and the activities of Oracle’s installed base does not support this,” company chief financial officer Jeff Henley said at the time.

Independent Validation

Henley said that revenue and growth data provided to industry analysts by vendors is not independently validated.

But Colleen Graham, an analyst in Gartner Dataquest’s software industry research group, disputed Henley’s claim that data provided to Gartner by vendors was not independently verified. She also asserted that identical methodology was used to examine Oracle, IBM and third-place Microsoft.

“Oracle has used the number one rating in years past as a marketing tool,” she said to the E-Commerce Times. “They never contested the methodology before they dropped to number two.”

Migration Likely

Now that Oracle has fixed bugs in the latest version of its main database product, analysts and industry specialists said they expect to see customers migrate to the new version.

“We’re seeing more and more people upgrading,” said Ronald Veith, a partner at Accenture who heads up that firm’s Oracle consulting practice. “About 65 percent of our work today is with 11i, and 35 percent with older versions.”

According to Oracle, some 3,000 users are in the process of upgrading to 11i, which could have a positive impact on the company’s financials in the future.