Oracle’s Q1 FY2012 Results – Sailing through market turbulence

by Greg Rankin, Head of Marketing at Rocela

Oracle posts Q1 results with non-GAAP total revenues up 11% to $8.4Bn and non-GAAP EPS up 14% to 48c. The devil, as always though is in the details.

In choppy market conditions Oracle’s first quarter for FY12 has proven that their now huge portfolio of software products can help them navigate through rocky waters, with new software licenses growing 17% Q-on-Q from 2010 – and this, after 25% growth Q-on-Q in Q1 2010. On top of this software license updates and product support grew at a similar 16% rate. This is solid performance in the current environment but not as impressive as it has been. This was reflected in after-hours trading where ORCL barely recovered to its opening position of yesterday, though this is likely to change somewhat after the market opens.

Analysts continue to focus on the Hardware division, and every Oracle watcher is keen to see how the Sun acquisition will be leveraged into hard cash. In this area the quarter was not really stellar with Q-on-Q revenue on hardware systems down by 5% – though this was blamed on the low-end server business. On Oracle’s part they again are absolutely clear that the focus is on high-margin products and this time they were emphatic about focus on products such as Exadata, Exalogic and SPARC M-series that contain ‘Oracle IP’.  President Mark Hurd suggested that profitability of these products including all “attach, support and service” would be around 5 times of that for x86 hardware. Larry Ellison made it clear that x86 had had its day and went further by stating that by the end of the next fiscal Oracle would “pretty much only be selling servers and storage with our IP”.

CFO Safra Catz also discussed guidance for Q2, which seems conservative even by Oracle’s usual standards, with predictions of new software growth in the 6-16% range, hardware flat or even down 5% and increase in overall revenue in the 4-8% range. With an announced 350 additional sales people added to the organisation in Q1 you can only imagine that the guidance performance is either highly conservative, will be significantly beaten as the company moves into Q3 and beyond or the current number of sales personnel will not be sustained much beyond the middle of the year.

Regarding new technologies, Larry batted off enquiries about ‘big data’ by saying that as with Object Oriented Db technology, video and audio, Oracle would still be the core platform for delivery of such data and would achieve this by providing interfaces to Hadoop. Furthermore Larry announced that 4 “brand-new engineered systems products” would be released in Q2 including a “fault tolerant SPARC Supercluster, featuring our new SPARC T4 microprocessor that runs up to 5x faster than a T3 microprocessor it replaces”.  At least one of the new systems will be announced at OpenWorld, perhaps lending more weight to the rumours of a mid-market Exadata solution.

So, for Q1 overall, solid results, more solid in software and support than hardware with that trend likely to continue into the next quarter and beyond, despite strong focus on the high margin hardware business. With Fusion pegged for general availability by the end of this calendar year and continued strength in Apps and core technology, it will take a serious uptick in hardware revenues for them to take centre stage on any of the next few earnings calls, despite the continuing improvement in margins in this area.

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