Oracle Q4 Earnings: Hardware Sales On Verge Of Turnaround, Execs Say

For Oracle, it was a flat fourth quarter that closed out a flat fiscal 2013.

But in a positive sign, Oracle executives predicted that the company's long-struggling hardware business may be on the verge of turning around.

For the fourth quarter ended May 31 Oracle reported revenue of $10.95 billion, virtually unchanged from $10.92 billion the same period one year earlier. Net income was $3.81 billion, up 10 percent from $3.45 billion one year ago.

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Hardware systems revenue in the quarter declined 9 percent to $1.43 billion. That included a 13 percent decline in hardware systems product sales to $849 million and a 3 percent decline in hardware systems support revenue to $582 million.

Oracle, which entered the hardware business in 2010 when it acquired Sun Microsystems, has seen hardware sales steadily shrink ever since. The company has attributed that decline to the company's exit from the commodity x86 server business while it ramps up its higher value Engineered Systems business.

The $849 million in hardware product sales was "better than expected," said Oracle co-president Safra Catz in a conference call with financial analysts Thursday. "We could have growth in total hardware [sales] as early as Q1," she said. "I think we may have just seen the last of annual hardware revenue declines, which would have positive implications for total revenue."

"In Engineered Systems we had a very strong quarter," said Oracle CEO Larry Ellison on the call, with revenue from those products up 50 percent year-over-year, accounting for more than one-third of all hardware sales. In the quarter, the company sold more than 1,200 Engineered Systems with some 600 of those the Exadata Database Machine, he said.

"With the continued rapid growth of our now much larger Engineered Systems business, plus our new high-performance SPARC T5 and M5 servers, we just might see overall hardware [sales] growth this Q1," Ellison said confidently. "And we will see overall hardware growth for the full fiscal year."

NEXT: Software License And Cloud Subscription Sales Surpass $10 Billion For The Year

In the fourth quarter, software revenue grew 4 percent to $8.43 billion. That included 1 percent growth in new software licenses and cloud software subscriptions to $4.03 billion, while revenue from software license updates and product support increased 6 percent to $4.40 billion.

"This quarter we saw a record $4 billion in new software license and [software-as-a-service] subscription revenue," Oracle's Catz said, noting that fiscal 2013 marked the first time those sales surpassed $10 million.

Oracle co-president Mark Hurd, also on the call, said the company's cloud business has an annual sales run-rate of more than $1 billion.

Ellison said Oracle would announce next week partnerships with a number of major cloud vendors, including Microsoft, Salesforce.com and NetSuite, all revolving around the vendor's flagship Oracle Database 12c software.

For all of fiscal 2013, Oracle reported revenue of $37.18 billion, up a fraction from $37.12 billion in fiscal 2012. Net income for the year was $10.93 billion, up 9 percent from $9.98 billion in fiscal 2012.

For fiscal 2013, software revenue grew 5 percent to $27.46 billion. That included 4 percent growth in new software licenses and cloud software subscriptions to $10.32 billion, while revenue from software license updates and product support increased 6 percent to $17.14 billion.

Hardware systems revenue for fiscal 2013 declined 15 percent to $5.35 billion. That included a 21 percent drop in hardware systems product sales to $3.03 billion and a 7 percent decline in hardware systems support revenue to $2.31 billion.

PUBLISHED JUNE 20, 2013