Despite strong growth in its applications, and database and middleware business lines the rosy glow of Oracle’s Q4 2011 results (for the period ended 31 May) was dulled by a 6% fall in hardware product sales to $1.2bn. Meanwhile, cloud services revenue broke the $1bn barrier in FY11, although growth showed a slowing trend over the course of the year.
This is the first quarter where hardware sales including the Sun products could be compared on a like-for-like basis, and they were found wanting. (See Oracle brings Sun on board – and profitably for FY10 and Q4 results). Oracle’s decision to “move away from selling products at a loss or reselling other company’s products” will have contributed to the surprise outcome. The strategy is to reduce sales of low cost hardware and push high-end, high-priced Exadata and Exalogic systems. The results indicate this is having a negative effect at the moment. Oracle expects the number of Exadata and Exalogic machines to triple during FY 2012.
However, the negative hardware growth could also be an indication that customers remain cautious about Oracle’s hardware-to-application stack play and too heavy a reliance on a single vendor. Given that Oracle software is increasingly being tuned for its home hardware, Exadata and Exalogic sales trends will be a important indicator of the acceptance of the bold end-to-end strategy.
The other surprise was cloud services revenue. Although Q4 2011 revenue was up 24% to $367m, and the full year figure rose by 58% to $1.38bn, the sequential quarterly growth rate slowed during 2011. Q1 saw a growth rate of 78%, Q2 came in at 86% but Q3 and Q4 rates were 61% and 24% respectively. This could be due to Oracle focusing its attention on its hardware business and the work needed to get Fusion Applications out of the door. Or maybe there is a belief that selling the hardware to power the cloud (public and private) is more profitable than SaaS applications and will lay the foundations on which to build SaaS and other “as-a-Service” business initiatives later on.
There was plenty of positive news however. Q4 total revenue was up 13% to $10.8b, and up 33% to $35.6bn for the full year. Within this, new software license sales were up 19% to $3.7bn for the quarter, and 23% to $9.2bn for the year. Much of the revenue growth appears to be organic, although the contribution of the $1bn ATG acquisition (see Oracle’s billion dollar bid for ATG), which was completed in January 2011, was not split out. Operating margin for the quarter was 40%, and 34% for the full year. By comparison, rival SAP reported a 17% lift in total revenue for its last full year, and an operating margin of 30.5%, an increase of 3% (see SAP to maintain growth pace in 2011).
New software license sales for database and middleware, and applications each grew by 23% year on year. Database growth was cited as being twice as fast as any year over the past decade. Even though total yearly growth was up, growth rates for new license sales in the database and middleware business showed a downward trend across the four quarters, while in applications the trend was upwards. It will be interesting to see how well hardware and application sales track to database take-up, or whether one area of business becomes a clear driver for others.
Geographic growth for the full year was mixed. New software license revenue grew by 26% in the Americas, 16% in EMEA, and 25% in Asia Pacific.
