Bloomberg News

Oracle Tops Earnings Estimates on Higher Corporate Spending

September 20, 2011

(Updates with CEO comments starting in fifth paragraph.)

Sept. 20 (Bloomberg) -- Oracle Corp. reported profit that topped analysts’ estimates as companies increased spending on database software and applications that help run their businesses. The shares rose in extended trading.

Fiscal first-quarter earnings excluding some items were 48 cents a share, beating the average 47-cent estimate of analysts surveyed by Bloomberg. Sales rose 12 percent to $8.37 billion, matching the average analyst projection. Forecasts for this quarter’s earnings also topped analysts’ predictions.

Chief Executive Officer Larry Ellison has spent more than $40 billion on takeovers since 2005, aimed at adding programs that help large corporations manage operations and tackle complicated computing tasks. The Redwood City, California-based company has benefited from pairing those products and its own databases with hardware acquired in the $7.4 billion purchase of Sun Microsystems Inc. last year.

“The hardware business is fueling the software business -- that’s the takeaway,” Brent Thill, an analyst at UBS AG in San Francisco, said in an interview. “Without the hardware business, their infrastructure business would not be putting up the kind of numbers it is. They’re seeding the market.”

Sparc, Solaris

Oracle will concentrate on selling profitable computer systems, called Exadata and Exalogic, that combine Sun’s Sparc chips and Solaris operating system with Oracle software to deliver faster computing performance, Ellison told analysts on a conference call.

The approach could return the hardware business -- which has reported lower sales for two quarters in a row -- to growth by fiscal 2013, he said. At the same time, Oracle will continue to de-emphasize less-profitable Sun machines that use so-called x86 chips, based on an Intel Corp. design.

“I don’t care if our commodity x86 business goes to zero -- we don’t make any money selling those things,” said Ellison.

Oracle’s shares rose as much as 4 percent to $29.48 in extended trading, after closing at $28.35 on the Nasdaq Stock Market. The stock has dropped 9.4 percent this year.

Net income in the first quarter, which ended Aug. 31, rose 36 percent to $1.84 billion, or 36 cents a share, from $1.35 billion, or 27 cents, a year earlier, the company said in a statement. Analysts had predicted $1.79 billion, or 35 cents a share.

License Sales

New software license sales, a predictor of future revenue, rose 16 percent to $1.5 billion, beating the 15 percent gain estimated by Jason Maynard, an analyst at Wells Fargo & Co. in San Francisco. Hardware sales declined 1.4 percent to $1.67 billion.

The company’s portion of the computer-server market declined to 7.2 percent in the second quarter, from 8.1 percent a year earlier, according to a report last month from market researcher IDC.

Earnings excluding certain items for the current period will be 56 cents to 58 cents a share, compared with the 56-cent average estimate of analysts. Sales excluding certain items will rise 4 percent to 8 percent, shy of the 8.2 percent analysts projected.

Ellison told analysts that four more of the company’s powerful computer systems acquired with Sun will debut in the current quarter, including a “Sparc Supercluster” machine that’s intended to compete with systems from International Business Machines Corp.

Data Analysis

At the OpenWorld conference in San Francisco that begins Oct. 2, Ellison plans to unveil a new system that can perform data-analysis tasks in the computer’s memory instead of using slower disk drives.

The system would be similar to a combination of hardware and software that SAP AG sells with hardware partners including IBM and Hewlett-Packard Co. Oracle and SAP already compete in the market for applications that handle business tasks such as payroll and supply-chain management.

Ellison said on the conference call that Oracle is building a computer “appliance” that can attach to its Exadata machines or other Oracle databases and feed them information from open- source software called Hadoop, which analyzes unstructured data such as e-mail content.

“As more and more data gets computerized, a lot of that data finds its way into an Oracle database,” he said. “Oracle’s strategy has always been to integrate different types of data.”

Oracle co-President Mark Hurd told analysts he plans to discuss another “engineered system” combining Oracle hardware and software during a webcast planned for tomorrow.

--Editors: Lisa Rapaport, Jillian Ward

To contact the reporters on this story: Aaron Ricadela in San Francisco at aricadela@bloomberg.net

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


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