Bloomberg News

Oracle Sales Poised to Top $10 Billion on Shift to Hardware

June 23, 2011

(Updates shares in fifth paragraph.)

June 23 (Bloomberg) -- Oracle Corp. is likely to say today that quarterly sales topped $10 billion for the first time as Chief Executive Officer Larry Ellison benefits from pairing software and hardware, a strategy mastered by Apple Inc.

Analysts surveyed by Bloomberg predicted, on average, that Oracle will report revenue of $10.8 billion in the fiscal fourth quarter, which ended in May. Earnings excluding certain costs likely rose to 71 cents a share, according to projections.

Ellison is using his purchase of Sun Microsystems Inc. to add computers to the arsenal of programs he has amassed through more than $42 billion in acquisitions since 2005. Oracle has tailored its databases, used to store information, to run faster on new machines using Sun hardware. The approach helps Oracle woo corporate customers the way Apple lures computer users, said Brendan Barnicle, an analyst at Pacific Crest Securities Inc.

“The way that Apple provides consumers with fully integrated products -- the hardware as well as the software -- Oracle is doing much the same thing,” said Barnicle, who is based in Portland, Oregon. “They’re a one-stop shop for whatever your business needs.”

Oracle fell 58 cents, or 1.8 percent, to $31.62 at 9:52 a.m. New York time in Nasdaq Stock Market trading. Before today it climbed 2.9 percent this year and surged on May 2 to $36.37, its highest closing since Oct. 19, 2000.

Deborah Hellinger, a spokeswoman Redwood City, California- based Oracle, declined to comment.

License Sales Predictions

Oracle’s Exadata machines, which combine specially engineered Sun computers with Oracle database software, will likely keep fueling growth, said Mark Murphy, an analyst at Piper Jaffray & Co. in San Francisco. That’s because customers who buy Exadata also purchase software licenses, generating revenue in the future.

New license revenue, a predictor of future sales, probably climbed 15 percent to $3.61 billion in the fourth quarter, said Murphy, who rates Oracle “overweight” and predicts that the shares will rise to $37. That includes $2.63 billion from databases and so-called middleware, which helps programs work together, and $983 million from applications, Murphy said.

Analysts at UBS AG project a 17 percent gain in new license sales, according to a June 3 research note. Oracle said on March 24, during the third-quarter earnings call, that new software license revenue would climb 9 percent to 19 percent in the fourth quarter.

Another benefit from Sun is the Java programming language Oracle gained in the deal. Ellison has called Java “the single most important software asset” the company has ever bought.

Grappling With Google

A lawsuit Oracle filed against search giant Google Inc. may added to chances to profit from this purchase, said Pat Walravens, an analyst at JMP Securities LLC in San Francisco.

Oracle accused Google, based in Mountain View, California, of using technology related to Java in the Android mobile operating system. Oracle’s damages expert has estimated that Google would owe $1.4 billion to $6.1 billion in damages if it were found liable for infringement.

“Our sense is that Oracle has had the better side of the argument,” Walravens wrote in a June 16 research note.

Even as Oracle benefits from Sun products, its sales growth is expected to taper off as year-earlier figures reflect the acquisition. Sales are projected to increase 8.8 percent to $39 billion in 2012 after surging 34 percent in 2011, according to a Bloomberg survey of analysts.

Catch-Up In The Cloud

The company’s sales are getting a boost from demand for databases and the servers that populate data centers, which can provide computing power over the Internet, via the so-called cloud. Still, the company lags behind rivals in the software used to deliver cloud computing, where Salesforce.com Inc. is a leader, Murphy said.

“A database is not the cloud, but part of the infrastructure,” Murphy said. “They’ve got a way to participate, but they’re not offering multitenant cloud-based products.”

Oracle will get help in cloud computing with the introduction of Fusion, a new version of its suite of applications that help companies handle a range of business tasks, said Kirk Materne, an analyst at Evercore Partners Inc. in New York. Customers will be able to run Fusion in their data centers or access it via the Web.

“If you look at it from an applications standpoint, with Fusion applications, they now have a much more comprehensive software-as-a-service offering,” Materne said.

--With assistance from Aaron Ricadela in San Francisco. Editors: Tom Giles, Stephen West

To contact the reporter on this story: Zachary Tracer in New York at ztracer1@bloomberg.net

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net


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