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Oracle to triple Exadata installs this year

Ellison closes first $10bn quarter

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Software giant and hardware upstart Oracle has closed out its first ever $10 billion quarter, and the company told Wall Street that it can triple the base of Exadata clustered database systems in its fiscal 2012 year.

In the fourth quarter of fiscal 2011 ending May 31, Oracle raked in $10.8bn in revenues, an increase of 13.4 per cent over the same period in the prior fiscal year. Net income was up a dramatic 36 per cent, to $3.21bn in the quarter. For the full fiscal year, Oracle posted sales of $35.6bn, up 32 per cent. This is partly down to the acquisition of Sun Microsystems in January 2010, but it's also the result of true organic growth.

New software license sales in Q4 rose by 19.2 per cent, to $3.74bn, while software update and product support was up 15.4 per cent, to $3.96bn. Oracle's co-founder and CEO, Larry Ellison, said that Oracle's database business was up 28 per cent in fiscal Q4 and rose 26 per cent for the full year. Oracle lumps database and middleware sales into one category in its financial presentation, and this systems software accounted for $5.36bn in revenues in Q4 (including new licenses and support), up 16.7 per cent.

No choke

Application software (again including new licenses and support) brought in $2.34bn, up 18.4 per cent from a year ago. While many competitors had been hoping that Oracle would choke on its Sun acquisition, those hopes appear to be in vain. Oracle has knocked Sun's business down to something close to its proper size to be a profitable business – something Sun's own founder was not able or willing to do – and continues to manage it to be profitable first and growing second.

In the quarter, Oracle's hardware systems accounted for $1.16bn in revenues, a decline of 6.2 per cent over the prior year, but hardware systems support revenues rose by 12.5 per cent to $673m. That hardware business had $511m in expenses (down 24.3 per cent) and expenses relating to the support business stayed about the same at $309m (up a point to be precise). The next effect is that even as Oracle cut back on revenues, it boosted the profits on the Sun business. Gross margins for the company, including the Sun system business, were 56 per cent in the quarter, Safra Catz, Oracle co-president and CFO, explained on the call with Wall Street analysts going over the numbers, up mightily from the 46 percent gross margins a year ago.

As she has in the past, Catz reminded everyone – and co-president Mark Hurd echoed – that Oracle's secret to success with the Sun business was to sell what it makes, not resell what it doesn't make, and to walk away from deals that don't make money.

"Selling units that don't make money is an easy thing to do," Catz explained, and quipped that Hurd, who used to run Hewlett-Packard before coming to Oracle last summer, could sell a couple hundred million dollars in iron in an afternoon. "We'd just rather make money," she said with a chuckle. "We're funny that way."

Hardware growth?

When pressed ever so gently by Wall Street about when the top line for the Sun hardware business might grow, Hurd said "there's no question we want to grow the top line, but we want to grow it right." And that, he explained, means beefing up the sales force (Oracle added 800 people this quarter) and doing a lot of cross, up, and down selling to get the most Oracle content in a deal as is possible.

Ellison chimed in and said that the idea was to sell fewer undifferentiated systems and more engineered systems, which is Oraclespeak for machines like the Exadata database cluster and the Exalogic middleware cluster. Each one of the 300,000 customers using an Oracle database is a potential Exadata customer, and each one of the 100,000 customers using its various middleware packages is a potential Exalogic customer. The attach rates for Oracle databases and middleware on these are 100 percent, and it don't get no better than that. "We think we have a lot to sell already and we can grow organically," Ellison explained when asked about doing acquisitions.

Oracle had been bragging a few quarters ago that the pipeline for Exadata machines was $2bn in size, but then stopped talking about it. Ellison said in the Wall Street call today that Oracle has installed over 1,000 Exadata clusters (not racks, but distinct clusters) so far, and that it can triple the base to more than 3,000 machines in fiscal 2012.

'Big Data Accelerator'

Hurd said that the ramp for the Exalogic middleware clusters, which were announced last September, was even faster than the ramp for the Exadata machines, although none of Oracle's top brass talked about customer counts or pipelines for these systems.

Ellison said that Oracle was cooking up some more appliance servers, which would debut at Oracle's OpenWorld customer conference in the fall, including a large memory version of the Exadata appliance that could do more in-memory database processing. Oracle is also working on something Ellison called the "big data accelerator", which is a cluster of machines with Hadoop and the related Hadoop Distributed File System plus some Oracle secret sauce to goose its performance and integrate it with Oracle relational databases.

Looking ahead to the first quarter of fiscal 2012 ending in August, Catz said Oracle anticipates that new software license revenues to grow between 10 and 20 per cent, with hardware revenue, not including support, to have revenues in the range of down 5 per cent to up 5 per cent. Overall revenues will increase by 10 to 13 per cent, and GAAP earnings per share are expected to be in the range of 33 to 36 cents.

Oracle has $29bn in cash and securities, but it doesn't seem inclined to blow it on a big acquisition. Ellison said the valuations on potential acquisitions do not make sense right now.

That sure sounds like a pin pricking a bubble, doesn't it? ®

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