Oracle's fourth quarter strong, hardware sales light

Oracle reported strong fourth quarter earnings as database and application sales surged, but hardware system revenue was a bit light relative to expectations.

The company reported fourth quarter earnings of $3.2 billion, or 62 cents a share, on revenue of $10.8 billion, up 13 percent from a year ago. Non-GAAP earnings were 75 cents a share. Wall Street was expecting earnings of 71 cents a share on revenue of $10.75 billion.

Hardware revenue was below expectations, but Oracle's core software sales performed well. New software license revenue in the fourth quarter was up 19 percent from a year ago to $3.7 billion. Software update and product support revenue was up 15 percent to $4 billion. Hardware system revenue was down 6 percent to $1.2 billion. Barclays Capital analyst Israel Hernandez projected hardware sales of $1.29 billion for the fourth quarter. Collins Stewart analyst projected hardware revenue of $1.35 billion in fourth quarter hardware revenue.

On a conference call with analysts, Oracle CEO Larry Ellison played down hardware worries because falling sales means commodity systems are disappearing. Why? Oracle is transitioning to higher end systems that happen to have database and application license and maintenance revenue attached to them. "As Exadata and Exalogic becomes largest part of overall base that improves our profitability," said Ellison. "We sell more engineered systems and it's an enabler that increases our rate of sales for our middleware because it runs better. We sell more database software because of Exadata. It's a virtuous circle. "

Safra Catz, Oracle president and CFO, said touted the company's organic growth---a notable point given the software outfit has typically been a serial acquirer of rivals. Catz said:

In Q4, we achieved a 19 percent new software license growth rate with almost no help from acquisitions. This strong organic growth combined with continuously improving operational efficiencies enabled us to deliver a 48% operating margin in the quarter.

On a conference call with analysts, Catz projected non-GAAP first quarter earnings of 45 cents a share to 48 cents a share with revenue growth of 10 percent to 13 percent. Wall Street was expecting 46 cents a share.

Oracle President Mark Hurd said the company had more than 1,000 Exadata and Exalogic systems installed worldwide. The goal for fiscal 2012 is to triple that system count.

For fiscal 2011, Oracle reported earnings of $8.5 billion, or $1.67 a share, on revenue of $35.6 billion, up 33 percent from a year ago.

By the numbers:

• Database growth was strong and CEO Larry Ellison said Oracle was focused on so-called big data crunching. Database and middleware revenue for the fourth quarter was $5.35 billion, up 17 percent from a year ago.
• Applications revenue was $2.34 billion in the fourth quarter, up 18 percent from a year ago. New software license revenue for applications was up 22 percent from a year ago to $1.04 billion.
• 35 percent of revenue was new software licenses with 36 percent of sales deriving from support and maintenance.
• Hardware system revenue was 17 percent of sales. Of that sum, 6 percent of revenue came from support.
• Cloud services revenue was $367 million in the fourth quarter.
• In the fourth quarter, Americas revenue was $5.48 billion followed by Europe, Middle East and Africa at $3.56 billion and Asia Pacific at $1.72 billion.
• Oracle ended its fiscal year with 108,429 employees.