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Databases to the Rescue at Oracle

By Jim Kerstetter If Oracle (ORCL) didn't have a database business, it would be fending off a hostile takeover bid by rival PeopleSoft (PSFT), rather than the other way around.

That harsh reality was reflected in its latest earnings reported after the stock market closed on Sept. 14. Oracle said net income in the fiscal quarter that ended Aug. 31 was $509 million, up 16% from a year ago, and just over analysts' expectatations. Sales increased 7%, to $2.22 billion. The report could bolster sagging stock prices in the tech sector, which has seen a few bellwethers disappoint on earnings in recent weeks.

Thanks to interest in so-called clustering and grid technology that allows many small databases to work together without hang-ups, sales of new databases were 18% higher than in last year's quarter, to $494 million. Database updates increased an additional 15%, to $494 million. Sales of new databases have grown 10% or more in each of the last four quarters.

"WORK TO DO." Yet in the key area that Oracle hopes to improve through its PeopleSoft acquisition, sales of e-business software -- used to run tasks such as financials and human resources at big companies -- took a dive. New business software was down 36% from a year ago, to $69 million. In fairness, Oracle was dealing with a tough comparison because of a major deal in Russia year ago. But take that deal away, and sales still would have been off 11%. "Either way, we have work to do," Chief Financial Officer Harry You said in a call with Wall Street analysts.

It was the second straight quarter of shrinking sales in a business that has long been a disappointment. When Oracle first released its e-business suite -- an updated version of older software that it built to run over the Internet -- more than four years ago, CEO Larry Ellison said he hoped it would eventually account for half of Oracle's sales.

That hasn't happened. In the most recent quarter, applications sales were just 12% of Oracle's $563 million in new software licenses, an important barometer for future growth at a software company. New database sales accounted for the rest.

CRUCIAL DEAL. Little wonder Oracle has pressed ahead in its efforts to acquire applications rival PeopleSoft. A week after a landmark ruling in U.S. District Court that cleared a major hurdle to the $7.7 billion hostile takeover, these results make it clear just how important acquiring PeopleSoft is to Oracle's future.

And thanks to that successful database business, Oracle has nearly $10 billion in cash and short-term investments to make the PeopleSoft deal a reality. Kerstetter is a correspondent in BusinessWeek's Silicon Valley bureau

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