By Richard McCaffery
Database and enterprise software company Oracle (Nasdaq: ORCL)
reported that fiscal fourth quarter net income (minus onetime
investment gains) grew 76% to $926 million, or $0.31 per share,
up from $527 million, or $0.18 per share, a year ago. The
company beat estimates by six cents, according to First
Call/Thomson financial.
Revenues grew 15% to $3.4 billion, up from $2.9 billion, as
sales of the company's business software applications took off.
By now it's well known that Oracle shares fell in overnight
trading because sales growth on Oracle's flagship database
software unit came in soft at 12%. Is this a big deal?
It certainly marks a slowdown from recent quarters, and since
it's the company's largest revenue generator by far, investors
pay close attention. Here's how it looks:
Database
Sales Growth
Q4 12%
Q3 32%
Q2 17%
Q1 8%
Q4 '99 25%
You can see that database sales fluctuate quite a bit, a trend
the company has been trying to mitigate. Beneath the numbers it
looks like the company made some progress.
Jeff Henley, Oracle's chief financial officer, said database
sales slowed because the company pushed fewer megadeals, which
the company defines as contracts worth $5 million or more. He
said this is by design, as the company is working to extend its
customer base to small and medium businesses.
Indeed, in December Oracle slashed prices on its database
products and it looks like the effort is bearing fruit. Chief
Executive Larry Ellison said sales to small and medium customers
grew 75% in the latest quarter. Megadeals accounted for 18% of
total revenues, down from 24% a year ago.
Henley said he likes this trend since backloading big deals in
Q4 and the heavy reliance on large contracts has led to uneven
earnings. This has been a frequent criticism of Oracle, that
it's earnings stream is lumpy. Now that the company is moving to
make some adjustments, database sales slip and the shares fall.
You can't win if you play the earnings game with Wall Street.
While the database numbers bear watching, the company has a
plausible reason for the decline, one that should benefit the
company in the long run. Henley said he expects database sales
to increase to the 20% range and that he thinks that level is
sustainable.
There's much more worth talking about, especially growth in
Oracle's applications business and continued margin
improvements. Also, check out research analyst John Del
Vecchio's Oracle research report. You can download it for free
at the Fool's Stock Research center.
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