Oracle pleasantly surprises but forecasts steep decline in new software sales

(By Richard Holway 11.00pm 18th March 09) Oracle shares are up over 7% in after hours trading tonight as it pleasantly surprised the market. Revenues were up 2% at $5.5b. But it was the eagerly watched sales of NEW software that declined much less than expected. It was still a 6% drop to $1.5b - but analysts had expected a 12% drop. However, the decline next quarter (Q4) is expected to be much steeper - minus 17% to 27% if currencies stay where they are (-5% to -15% at constant currency). Total Q4 revenue growth should fall somewhere between -3% and +2% (ccy).

The results were pretty much in line with what we here at TechMarketView had expected for the sector as a whole in our recently published MarketView report. With resilience in the 'Make do and Mend' departments (e.g. add on sales to existing clients, maintenance and support) offset by weakness in new project-type sales. Indeed support revenues were up 11%. This is certainly helping to drive operating margins - now 36% (+54bps). On the concall, Oracle president Safra Catz reiterated Oracle's 50% (yes, that's five-zero percent) margin target and didn't even see that as a ceiling.

On Demand ("Cloud") revenues barely moved up compared to the previous quarter but were 10% higher yoy. However, at $191m, this is still under 4% of the total. As you might expect, Consulting revenues went backwards 10% yoy (and sequentially); Education revenues were even worse - down 23% yoy. Even mighty Oracle can't resist these ebbing tides.

In an interesting new twist, Oracle is to pay its first dividend since its 1986 IPO. Now there was a time when only boring old institutions like Banks paid dividends. There place has been taken by 'boring' old software companies. Indeed, even our very own Boring Award holder, Sage now pays a dividend.