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Financial results - July 2005.

Since Oracle finalised the acquisition of PeopleSoft in January, its rivalry with its German counterpart in enterprise applications, SAP, has boiled over. As Oracle was announcing its annual results to Wall Street in late June, SAP was busy trying to knock confidence in the company by widening its 'Safe Passage' programme that subsidises organisations who want to move from PeopleSoft and JD Edwards packages to the mySAP platform. By the time SAP announced its latest figures a few weeks later, Oracle was gleeful that SAP had only managed to sign up 21 Safe Passage deals in the first six months of 2005.

Sniping aside, both company's headline numbers looked good. SAP's second quarter revenues of E2.02 billion ($2.4 billion) were an increase of 13% on the same quarter in 2004. Showing even greater buoyancy, software licence sales were up 16% to E576 million, accounting for 29% of the company's total revenues. This significant growth came despite problems in both Japan and SAP's home market of Germany. Software revenues dropped by 13% in Germany and by 11% in Japan.

EMEA remains SAP's largest regional market, although growth, at 9%, was not as strong as elsewhere. That was made up for by excellent results in the US, where the company registered a licence revenue rise of 24% to E174 million, allowing it to take further market share away from competitors.

Breaking SAP's figures down into different lines of business also reveals some mixed performances. Sales of customer relationship management (CRM) software, in particular, dropped by 3% to E107 million. AMR Research analyst Bruce Richardson was unconvinced by the official explanation of "seasonal" fluctuation, considering that last quarter's CRM revenue increased by 21% from the corresponding quarter of 2004. Instead, he pointed to a greater emphasis on pushing the adoption of mySAP enterprise resource planning (ERP) software and the delay of the company's CRM software as a service product as the source of downturn.

Software sales elsewhere were more upbeat: the ERP unit showed 19% growth, supply chain management 11%, product lifecycle management 17% and supplier relationship management 37%, with NetWeaver and related products a massive 89%.

Like SAP, arch-rival Oracle is, according to AMR's Richardson, "clearly benefiting from customers' desires to streamline the number of application and infrastructure providers they use". Having absorbed PeopleSoft, Oracle's topline numbers look good, with fourth quarter revenue to 31 May up 26% to $3.88 billion compared to the same period a year ago. That brought revenues for the whole year to $11.80 billion, a leap of 16%.

The growth, in the first full quarter since the acquisition, was fuelled by strong demand for its core database products. Lumping PeopleSoft and JD Edwards revenues with its own previously lacklustre application sales also contributed.

New database and middleware software sales were up 16% to $1.26 billion, bringing total revenues for the unit to $2.75 billion. On an annual basis, that puts its database business at $8.54 billion. CEO Larry Ellison cited analyst houses Gartner, IDC and Morgan Stanley as agreeing that "Oracle is increasing database market share while IBM's DB2 database is in decline. This quarter marks an acceleration of that trend as more and more companies move their database applications off mainframes onto Oracle grids."

But it was a different story with applications. By adding in the acquired revenues, Oracle was able to show a 52% jump in new licence sales for the quarter to $350 million and a doubling of the overall applications business for the quarter to $1.41 billion. However, this total was less than the combined Oracle and PeopleSoft licence sales of $361 million in the same period last year. Then, Oracle's own applications business had been shrinking for four consecutive quarters; now its annual revenues total $3.58 billion.

Acquisitions are clearly making Oracle look in good shape. And Ellison has already spent $11.2 billion on four purchases in 2005.

Oracle and SAP, as much as they dominate their sectors, still have a long way to go to catch Microsoft at the top of the software league - although the gap is closing. Its year-end results took it to $39.8 billion, an increase of 8% over the year before. At the start of the year Microsoft had estimated growth of just 4%.

The rise in quarterly revenues kept in line with the yearly figures, increasing 9% to $10.16 billion, while net income leapt by 38% to $3.70 billion, representing a 36% net margin.

However, Microsoft's two biggest divisions, Windows and Office are not growing at anywhere near the same rate as its smaller lines of business. While quarterly revenues from Windows client operating systems rose 10% to $3.03 billion, and server and tools sales were up 15% to $2.68 billion, revenues from its Office and other information worker software rose just 2.5% to $2.91 billion. Another weakness was its business applications division, where revenues were up 11% to $247 million for the quarter, but operating losses worsened to $76 million.

But with $37.75 billion in the bank - even after handing over tens of billions to shareholders - the company can easily afford to cross-subsidise areas where it still has unfulfilled ambitions.
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Title Annotation:Oracle Corp., SAP AG and PeopleSoft Inc.
Publication:Information Age (London, UK)
Geographic Code:4EUGE
Date:Sep 10, 2005
Previous Article:Getting the most out of outsourcing.
Next Article:M&As in July 2005.

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