Oracle is continuing to grow both its software and its hardware business, though not quite as much as it had originally forecast.
Oracle (ORCL: NASDAQ) reported second quarter fiscal 2012 earnings after the close of market on Tuesday. Revenues came in at $8.8 billion for a 2 percent year-over-year gain. The company reported Non-GAAP Earnings Per Share (EPS) of 54 cents for a 6 percent year-over-year gain. Wall Street had expected revenues of $9.23 billion on EPS of 57 cents.
Oracle's software and support revenues both grew during the quarter. New software license revenues grew 2 percent to $2 billion, while product support revenues and software license updates rose by 9 percent to $4 billion. Hardware systems products revenues came in at $953 million for a 14 percent year-over-year decline.
Oracle CEO Larry Ellison isn't too worried about the drop. During the company's earning call, he stressed that the hardware business is growing where it counts. During the second quarter, Oracle sold over 200 Exadata database machines and Exalogic middleware and application systems. The engineered systems include pre-integrated hardware and software that Oracle said provides better performance and scale.
Ellison said that by the fourth quarter, the plan is to sell over 400 Exadata and Exalogic engineered systems per quarter. “That would make our annualized Q4 engineered system sales approximately $1 billion," he said. "As our engineered systems business gets larger, it will drive revenue growth in our overall hardware business."
In addition to the momentum coming from engineered systems moving forward, Oracle has expanded its sales force in an effort to invigorate growth.
“We have put 1,700 incremental sales resources into the field since the beginning of the fiscal year," Oracle President Mark Hurd said. "Great new products and more sales resources drive more organic growth."
Oracle is also growing the more profitable areas of its business. Even though it didn't reach its targets, Oracle's operating margins increased, Oracle President and CFO Safra Katz stressed during the earnings call.
“Even in a quarter where we did not actually end up selling as many new licenses as we'd hoped, our operating margins increased, and we are really on track to get back to our pre-hardware company margins, which puts us, of course, at still the highest operating margins in the software industry," Katz said. "I would bet on us to keep those earnings growing and protected."
The CRM space, where Oracle saw close to 20 percent growth during the quarter, is an especially promising area for Oracle, Katz said.
“However, where we had some weakness was in some of our vertical markets, which are longer sales cycle and which need to be managed very, very carefully," Katz said. "I will tell you that generally, in public sector, we are actually doing reasonably well in U.S. public sector."