Bloomberg News

Oracle Gains After Corporate Software Spending Boosts Profit

September 21, 2011

(Updates shares in fifth paragraph.)

Sept. 21 (Bloomberg) -- Oracle Corp. shares rose after the software maker reported profit that topped analysts’ estimates, boosted by increased spending on database programs and applications that help run businesses.

Fiscal first-quarter earnings excluding some items were 48 cents a share, the company said in a statement yesterday. That exceeded the average 47-cent estimate of analysts surveyed by Bloomberg. Sales in the period ended Aug. 31 rose 12 percent to $8.37 billion, matching the average projection. Forecasts for this quarter’s profit also topped analysts’ predictions.

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

“Oracle’s done an outstanding job of execution,” said Brendan Barnicle, an analyst at Pacific Crest Securities in Portland, Oregon. “It’s a positive for the software sector.”

Oracle rose $1.19, or 4.2 percent, to $29.54 at 4 p.m. New York time on the Nasdaq Stock Market. The stock has dropped 5.6 percent this year.

Sparc, Solaris

The company 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 yesterday.

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,” Ellison said.

Net income in the first quarter 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. Analysts had predicted $1.79 billion, or 35 cents a share.

‘Seeding the Market’

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 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.”

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.

For the current period, earnings excluding certain items will be 56 cents to 58 cents a share, the company said, 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.

Data Analysis

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

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 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.

In a separate webcast today, Andrew Mendelsohn, a senior vice president, unveiled a new product called the Oracle Database Appliance, a system designed for small and midsize businesses. The combination of hardware, storage and software will reduce customers’ costs and cut the time needed to build and maintain networks of servers, he said. The system’s capacity can be increased through software updates instead of switching to new hardware, Mendelsohn said.

--Editors: Lisa Rapaport, Jillian Ward

To contact the reporters on this story: Aaron Ricadela in San Francisco at

To contact the editor responsible for this story: Tom Giles at

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