Oracle's Mixed Message

An upbeat forecast for the current period and expectations for further growth countered fourth-quarter disappointments

by Aaron Ricadela

An investor holding Oracle shares since the beginning of the year is sitting on a 12% gain. That's not bad, especially considering shares of software bellwethers Microsoft and SAP are down in the same period. Shareholders hoping for further appreciation will have to weigh Oracle's bullish outlook for the current quarter against the disappointing fourth-quarter U.S. sales it reported June 26.

Much of what Oracle (ORCL) reported gave Wall Street cause for optimism. Net income rose 23%, to $1.6 billion, for the period ended May 31. Per-share earnings, excluding certain nonrecurring items, exceeded analysts' estimates by 2¢. Revenue soared 20%, to $5.83 billion, exceeding Wall Street expectations of $5.6 billion. And new software license sales, a key measurement of growth, were up 17%, to $2.48 billion, also outpacing Wall Street estimates. "The story for the year is we grew all our businesses faster than the market," Oracle Co-President and Chief Financial Officer Safra Catz said during a conference call discussing the results.

Flat U.S. Sales

Catz also issued a surprisingly high call for the first quarter, which ends in August, predicting that new license sales would shoot up 20% to 30% and that total revenue would increase 19% to 21%, compared with a blockbuster first quarter a year earlier.

But investors balanced the rosy outlook with what looks like leveling off of U.S. sales in areas Oracle has been beefing up through acquisitions. Oracle, long a powerhouse in sales of database software that helps companies manage large storehouses of information, has been on a buying spree aimed at nabbing share from Germany's SAP (SAP) in other areas—specifically, applications used by businesses for such tasks as balancing books, tracking inventory, and running human resources.

Oracle Chief Executive Larry Ellison has spent more than $20 billion since January, 2005, to acquire 31 software companies, including PeopleSoft and Siebel Systems (see BusinessWeek.com, 3/21/07, "Oracle: Beating Indigestion"). Oracle's fourth-quarter sales of new business applications licenses, a predictor of future sales, rose just 5% in the region that includes the U.S., to $415 million. Excluding Oracle's $3.3 billion acquisition of Hyperion Solutions on Apr. 23, U.S. sales were essentially flat. "That's where people are a little concerned," says Peter Kuper, an analyst at Morgan Stanley (MS). Meanwhile, sales in Europe and Asia grew much faster.