Oracle results boosted by licensing revenue growth

New software licensing revenue growth – the highest in ten years for the company – has helped boost Oracle's first quarter results.

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New software licensing revenue growth – the highest in ten years for the company – has helped boost Oracle's first quarter results.

New software licensing revenue grew 35% to $1.1bn (£550m), the strongest growth of any quarter in the past decade, the company reported.

Revenue for the period ending 31 August 31 was up 26% to $4.5bn (£2.25bn) and net income grew by 25% to $840m (£420m) compared to the same quarter last year, based on generally accepted accounting principles (GAAP).

Earnings per share grew 28% to 16 cents (eight pence).

Applications' new licence revenues helped drive growth, increasing by 65% over the corresponding period last year. Database and middleware new licence revenue was up 23%, the highest growth rate in seven years for Oracle, the company reported. Oracle released a major upgrade to its database software during the quarter, helping to drive that increase. The company had 35,000 downloads of the software during the first month it was available.

Oracle's results significantly beat some analyst expectations, including those of Citi Investment Research. Citi expected 20% growth in overall new software licensing, 15% growth in database and middleware licence revenue and just 33% in applications.

While database software is the historical focus for Oracle, the company is now hoping to become a dominant player in its two other lines of business: applications and middleware. Oracle figures it is number three in the middleware market, behind Microsoft and IBM. If Oracle and IBM continue to grow at their current rates, Oracle could pass IBM at the end of this year or early next year, Larry Ellison, CEO of Oracle, said during a conference call to discuss the earnings.

In applications, Oracle is behind market leader SAP. The companies have different strategies for growth, with Oracle trying to sell to its existing large company customers and SAP chasing small businesses, he said. "While we think the small business market is interesting because it's large, we just haven't figured out a way to make a substantial profit in that market," he said. Oracle would have to build a new sales force, products, marketing and advertising efforts in order to address the market, which doesn't promise strong revenue, he said.

Oracle's applications business, with its continued focus on existing customers, has the potential for huge growth in the future, he said. "We're just at the very beginning in terms of penetrating this market," Ellison said. The business includes products that Oracle sells to companies such as telecommunications operators. Those companies typically use custom software, some of which they may have installed as long as ten years ago, said Charles Phillips, president of Oracle. So part of Oracle's challenge is to convince these companies that off-the-shelf software from Oracle can work, he said.

For the current quarter, Oracle expects new software licence revenue to grow 15% to 25% from a year earlier and total revenue to grow 19% to 21%.

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