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Software Maker Oracle Churns Out Profit

by Steve BogdonThursday, December 20, 2007

SAN FRANCISCO (AP) - The economy may be sputtering, but Oracle Corp. (ORCL) (ORCL) is still hitting on all cylinders. Brushing aside worries about a possible slowdown in the technology sector, Oracle soared well beyond analyst expectations in its fiscal second quarter and raised hopes for a strong start in 2008 with an upbeat forecast.

The results released late Wednesday drove up Oracle's stock price by more than 6 percent.

Now the big question is whether Oracle's performance and bullish outlook should be interpreted as a positive sign for the entire technology industry.

Some analysts aren't ready to leap to the conclusion, reasoning that Oracle is simply outsmarting and out-hustling its competition. "It would be inappropriate to think that just because Oracle is doing well, the rest of the industry is too," said Cowen and Co. analyst Peter Goldmacher.

ecause Oracle's latest quarter ended in November, its results came out about a month before most other tech bellwethers.

The Redwood Shores-based company earned $1.3 billion, or 25 cents per share, for the three months ended Nov. 30, a 35 percent increase from net income of $967 million, or 18 cents per share, at the same time last year.

If not for stock option expenses and the costs incurred in recent acquisitions, Oracle said it would have earned 31 cents per share - 4 cents greater than the average estimate among analysts surveyed by Thomson Financial.

Revenue totaled $5.31 billion, a 28 percent improvement from $4.16 billion last year. Analysts, on average, had projected revenue of $5.04 billion.

"It was a very strong quarter, based on just about every metric you can think of," said Global Equities Research analyst Trip Chowdhry. In a telling indication of the company's growth, Oracle's sales of software licenses climbed by 38 percent to $1.67 billion. Analysts had predicted gains in the 20 percent range.

Software sales are closely watched because new licenses establish a pipeline for future revenue from product upgrades and maintenance.

"The strength of the quarter comes down to the fact that we are selling more products to more customers in more industries," Safra Catz, Oracle's chief financial officer, said in a conference call with analysts.

Signaling that its recent momentum will carry into 2008, Oracle forecast software sales will rise 15 percent to 25 percent in the current quarter, which ends in February.

Excluding stock option expenses, Oracle expects to earn 29 cents or 30 cents per share in the fiscal third quarter. The average analyst estimate for the quarter was 29 cents per share.

Oracle shares fell 49 cents to finish Wednesday's regular trading at $20.76, then rebounded by $1.36, or 6.6 percent, in extended trading.

The rally capped an exceptionally good day for Oracle's chief executive, Larry Ellison, whose $26 billion fortune consists primarily of Oracle stock. NetSuite Inc. (N), an online business software service he helped start nine years ago, completed its initial public offering of stock late Wednesday. The IPO, priced at $26 per share, valued Ellison's holdings in NetSuite at $844 million.

Oracle has been on a roll through most of the past two years, reaping the benefits of a shopping spree that has turned it into a one-stop shop for database software and applications that automate a wide variety of business operations.

By spending more than $25 billion snapping up its smaller rivals since 2004, Oracle has created the software industry's equivalent of a Costco warehouse, Goldmacher said. "Oracle looks to be better positioned than just about all its competitors." The list of rivals includes other technology heavyweights like IBM Corp., SAP AG (SAP) and Microsoft Corp. (MSFT) (MSFT)

There's a theory that Oracle and a few other industry leaders won't be hurt if the current economic uncertainty causes businesses to concentrate their tech spending on products made by well-established vendors.

"Customers are going with proven technologies with proven value," Chowdhry said. "That bodes well for Oracle and Microsoft. It doesn't necessarily bode well for the rest of the software industry."

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