Article

Experts wonder if Oracle's revenue growth is sustainable

Mark Brunelli, News Editor
Wall Street analysts and IT industry experts are wondering whether Oracle's explosive growth in new applications license revenues is sustainable over the long term.

Much to the dismay of its chief competitor,

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SAP AG, Oracle last week reported that total software revenues were up 29% to $2.7 billion during the last quarter, with database and middleware license revenues up 15% and new applications license revenues up a whopping 80%.

Some believe that the much-ballyhooed earnings are simply the natural result of Oracle's picking up the customer bases of more than 20 companies during a three-year acquisition tear. Oracle CEO Larry Ellison said the successful quarter resulted from his company's stealing customers away from SAP.

Others, like Stamford, Conn.-based analyst firm Gartner Inc., say there's still not enough information to tell for sure.

"I've seen some Wall Street analysts that peg most of the revenue at the acquisition angle, and I've seen others that are just generally pleased with the numbers and haven't really focused in on that," said Gene Phifer, Gartner's lead Oracle analyst. "We're trying to get our arms around that very question right now."

More on Oracle's acquisition spree:

Making sense of Oracle's acquisition spree

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Phifer said the chief driver of the increase in license revenues is unclear, though "it appears that a lot of the growth may be acquisition-related, and therefore there may not be sustainability in the numbers."

Gartner won't know for sure whether that is true until it looks closely at emerging Wall Street analyses and interviews Oracle on newly public information. After that, Phifer said, the analyst firm will go public with its official stance on the matter.

"If the growth is through acquisition, then you can't sustain it unless you keep on acquiring companies," Phifer said. "You've got to be able to grow organically to really have sustainable growth."

Gartner will focus its attention on Oracle's net new customers last quarter to differentiate how much of the growth is attributable to acquisitions and how much to organic growth.

"It could be existing customers [of Oracle and its newly acquired companies] that are buying additional things with new licenses, new upgrades, etc.," Phifer said. "We're trying to find out how many net new customers are in these numbers because that wasn't evident in the press release."

Laura DiDio, a senior analyst with Boston, Mass.-based Yankee Group, said that sustainability is certainly an important issue, but it doesn't really matter whether Oracle's growth is organic or not. A successful acquisition strategy can also lead to sustainable growth, she said.

"At the end of the day, what Wall Street cares about is how the numbers are coming in," DiDio said. "You are either going to grow organically or you grow by acquisition. The trick to [the latter] is you have to make the right decisions, and you have to focus on acquiring companies that are going to be a good fit."


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