Oracle Up Despite Disappointing Hardware Sales, May Call Temporary Halt to Acquisitions
With the acquisition of Fatwire all but completed, it may be a while before Oracle (news, site) buys anything else, CEO Larry Ellison said in a conference call, following the release of Q4 figures that showed a growth in net income of 36% toUS$ 3.2 billion.

Temporary Halt to M&A?

According to reports in the Financial Times, both Ellison and Oracle’s co-president Safra Catz said that the prices being cited for new technology companies at the moment don’t make sense and that Oracle is not going to pay them.

They are by and large not attractively priced right now and don’t make sense and we’re not doing them,” the FT cites Ellison as saying.

Catz simply described the prices of potential targets as “quite ridiculous."

Disappointing Hardware

Leaving aside, then, speculation about the price Oracle has agreed to pay for Fatwire in light of these comments, the Q4 figures will have given Oracle some joy, but there is one large fly in the ointment this time around.

That fly, which has been buzzing around for more than a year now, is how much Sun Microsystems is actually bringing to Oracle.

The deal, originally announced in April 2009 and finalized in January 2010, saw Oracle paying US$ 7.4 billion for Sun. At the time, Oracle said the deal would give clients long-term strategic advantages as it would give Oracle effective ownership of Java and Solaris. The sale was also aimed at building business in the servers and database market.

However, in this quarter's figures, hardware sales fell by 6% to US$ 1.6 billion despite predicting in March that they would report an increase of between 6% and 12%.

Oracle, though, played down the figures and said that the decline was part of a deliberate strategy to cut back on unprofitable lines, with Mark Hurd, former HP CEO and Oracle co-president, saying that the resale of other company products and low-cost servers are not part of Oracle’s overall strategy.

Learning Opportunities

Selling units that have no gross margin are easy to do…We are focused on selling hardware systems. We are now selling fewer systems at a higher price that are of more value to the customer that stay installed longer. And also we're doing that at higher margins," he said.

With this in its sights, the company said again that it is adding sales staff, building new computers that will be released later this year and offering hardware support contracts to make Sun machines a more attractive buy.

Strong Q4

Leaving these issues aside, Oracle’s figures for the quarter were impressive and, for the first time, hit revenues of more than US$ 10 billion for the quarter, with revenues touching US$ 10.8 billion, up 13.4% over the same period last year.

Net income rocketed by 36% to $ 3.21 billion, and taking the whole fiscal year into account, it posted sales figures of US$ 35.6 billion, up 32%. Its database business for the year was up 26%, with a 28% rise in the fourth quarter.

Finally, new software license revenue was up 19%  from a year ago to US $3.7 billion. Software update and product support revenue was up 15%  to $4 billion.

While the hardware figures may not be what Oracle had hoped for, the overall performance of the company must have pleased. Whether Oracle really calls a temporary halt to its acquisitions strategy remains to be seen and something to watch closely over the coming 12 months.