The new licenses number includes all product lines: database, middleware, and application. Looking at the applications licenses only, Oracle enjoyed a huge 63% increase in revenue over the same quarter last year. Although the number represents the effect of Oracle's new acquisitions, such as Hyperion and Agile, by any measure it is an impressive gain.
More information is in Oracle's press release on the quarter.
Ben Worthen, blogging for the Wall Street Journal, however, finds a cloud in Oracle's silver lining:
Oracle’s growth over the last several quarters has largely been due to a buying binge that’s seen the tech giant snap up more than 30 software companies over the last three years. While the acquisitions have been great for Oracle’s shareholders, the benefits have been harder to come by for the businesses that were customers of the acquired companies. Tech execs at these companies – who are now Oracle customers – say working with Oracle has been a mixed bag. Several have told us that they would jump ship if they thought there was an alternative. One of the reasons is that Oracle often charges them more for ongoing product support than the original seller did.With as many acquisitions as Oracle has done, and as many customers as it now has, it's not hard to find some that are unhappy. Ben's comment regarding the cost of ongoing support is right though, and it is in large measure what's driving the interest in third-party support providers. That alternative is available for some, but certainly not all, of the products that Oracle has acquired.
Still, the fact that Oracle is able to increase sales of the acquired companies shows that it must be making a good case in new deals for those vendors. Recent deals that we have been privy to indicate that Oracle's sales force is executing very well. If Oracle, and its partners, can also follow through in implementation and ongoing support--without getting greedy--Oracle will be hard to beat. SAP's slowing growth in its most recent quarter in the U.S. shows that it may already be losing momentum in its battle with Oracle.
Oracle's strong results in its Q2 also spell relief, at least temporarily, for IT spending generally. The fear has been that turmoil in the credit markets, the resulting slump in the financial sector, and weakness in consumer spending could lead to reduced levels of business investment. Our own forecast at Computer Economics for 2008 IT spending is one of anemic growth.
Although it is a backwards look, Oracle's results show that at least over the last three months, a good number of organizations were continuing to invest in new technology. So it would appear that a spending pull back has not yet taken hold. If IT spending growth does soften, Oracle will have a much more difficult time continuing the surge in sales it is enjoying today.
Update, Dec. 20: Worthen doesn't think Oracle's results spell good news for IT spending next year. Rather, that Oracle (and Accenture) are exceptions to a slowdown in IT spending growth.
Meanwhile, Dennis Howlett agrees that Oracle's increasingly fat margins in its maintenance and support business are unsustainable:
However, despite this one-two for Ellison, we should not be all aglow. Margins at Oracle climbed to 41.3%, up from 38.8% in the same quarter of last year. Part of that is being driven by its high value vertical market applications but part also comes from maintenance charges for years’ old product. Sooner or later customers are going to wake up and declare - enough is enough. I suspect that will be sooner rather than later as the subprime crisis eats into the IT budgets of companies affected by the downturn.Related posts
Oracle reports another blow-out quarter
TomorrowNow and the future of third-party support providers
SAP wins at Wal-Mart but reports slowing growth in U.S.
Computer Economics: 2008 IT Spending Outlook: Anemic Growth
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