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Oracle Set to Grow with Sun; Forecast Indicates Economic Upturn

03.26.2010
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After many months of grappling with the EU over the Sun acquisition and the fate of one popular open source database, Oracle is quickly reaping the benefits of its purchase.  The software giant reported its third quarter (of its 2010 fiscal year) earnings with bursting optimism.  Although Larry Ellison's company took a hit this quarter due to the price tag and restructuring costs of the Sun merger, their profits remained high.  The Sun integration is expected to bring substantial growth next quarter.

The fiscal 2010 third quarter ended in February for Oracle with revenues reaching $6.4 billion (up 17% from a year ago) and a net income of $1.2 billion.  Their net income fell 10% due to the Sun acquisition and the integration costs.  Excluding Sun, Oracle had a revenue growth of 7%.  Added to that was Sun's $273 million in hardware systems sales and $185 million in support.  For the next four quarters, Sun's revenues will allow Oracle to show double-digit growth even though Oracle's core software and support is only growing by single digits.  

In the first month with Sun on its books, Oracle's hardware had $206 million in operating costs and hardware support had $116 million in costs.  That means that 24.5% of the hardware money and 37.3% of the support money for Sun hardware hit the middle line.  Oracle, it seems, is working fast to fix the profitability issues that lead to the Sun buyout in the first place.

Wall Street had predicted slightly lower revenues this quarter from Oracle.  Oracle is now forecasting the fastest software license sales growth since mid-2008, which indicates that the IT market and the economy in general are well on their way to recovery.  An analyst from Goldman Sachs told businessweek that Oracle's report tells us that we're right in the middle of a recovery, not at the start.

Oracle CEO Larry Ellison was his normal combative self in the interviews following the quarterly reports.  Now that Ellison's company is a direct competitor with SAP, he did a little smack-talking in a statement and conference call:  "SAP's most recent quarter was the best quarter of their year, only down 15 per cent, while Oracle's application sales were up 21 per cent. But SAP is well ahead of us in the number of CEOs for this year, announcing their third and fourth, while we only had one," mocked Ellison.  In addition, he criticized SAP's strategy of trying to sell to new, smaller customers while Oracle sells more products and services to their existing customers.  "We really think that SAP has lost its way, and if they don't want to be number one, we do," said Ellison.  "We think SAP is vulnerable and we can take them on in a number of industries."  That may be true since Oracle's tech is built on Java while SAP is based on the aging ABAP language.