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Oracle Rises After Beating Estimates, Cites U.S. Recovery

Orders for new software remain slow but come in at the high end of company forecast

By Rochelle Garner and Connie Guglielmo

(Bloomberg) — Oracle Corp. (ORCL), the world's second- largest software maker, rose 5.1 percent in late trading yesterday after topping profit estimates and saying that U.S. customers are once again spending on technology.

"We are definitely seeing customers back buying," Oracle President Safra Catz said on a conference call. "No giant deals of any sort, but lots of very nice-size transactions for every size of company. We are really seeing a recovery."

Second-quarter net income rose 13 percent to $1.46 billion, or 29 cents a share, from $1.3 billion, or 25 cents, a year earlier, Oracle said. Excluding some costs, profit was 39 cents in the period, which ended Nov. 30. Analysts in a Bloomberg survey estimated 36 cents on average.

Companies across industries, including financial services, communications and retail, have resumed spending—a trend that is continuing this quarter, Oracle said. The company is also benefitting from a five-year, $42 billion acquisition spree, which boosted demand for Oracle's software-support contracts.

"Oracle clearly saw a return to a better spending environment," said Sarah Friar, an analyst with Goldman Sachs Group Inc. (GS) in San Francisco. She recommends buying the shares, which she doesn't own. "We're definitely seeing an enterprise tech spending rebound in the U.S."

Shares Advance

Oracle, based in Redwood City, California, rose as much as $1.16 to $24.04 in extended trading. The shares have climbed 29 percent this year on the Nasdaq Stock Market.

Excluding some costs, profit will be 36 cents to 38 cents a share this quarter, Oracle said. That compares with a 36-cent average estimate among analysts. Sales will grow 3 percent to 6 percent in the period, indicating revenue of as much as $5.8 billion. Analysts had projected $5.71 billion.

Including revenue from acquired companies, sales rose 3.3 percent to $5.87 billion last quarter, topping the estimate of $5.7 billion.

Oracle said some of that gain came at the expense of SAP AG (SAP:US), its larger rival in the market for business-management software.

"We grew faster than SAP in every region around the world, clearly taking market share, as they have essentially come apart at the seams," Catz said on the call.

Lindsey Held, a spokeswoman for Walldorf, Germany-based SAP, didn't immediately return an after-hours phone call seeking comment.

Sun Strategy

Oracle also discussed its proposed $7.4 billion acquisition of Sun Microsystems Inc. (JAVA), the fourth-largest maker of server computers. That deal, announced in April, has been delayed by a European antitrust review. The company expects a "full and unconditional clearance" from the European Commission in January, Catz said.

Chief Executive Officer Larry Ellison said Oracle won't pursue Sun's low-margin, high-volume server business. The company will cede that market to the current leaders,

International Business Machines Corp. (IBM), Hewlett-Packard Co. (HPQ) and Dell Inc. (DELL), he said. Instead, Oracle plans to push sales of more profitable, high-performance servers, said Ellison, 65.

Oracle's decision to focus on servers that yield higher profits "makes me feel better about the margins they can get out of the deal," said Goldman Sachs's Friar.

The company reiterated a forecast that Sun will contribute $1.5 billion in profit the first fiscal year after the transaction is complete.

To maintain growth, Oracle has acquired 54 companies in the past five years, including the $10.3 billion takeover of PeopleSoft Inc. The spree helped Oracle more than double sales and expand beyond its dominant database software. The acquisitions also turned Oracle into a one-stop software shop for business customers.

Oracle has added programs that run a range of tasks, from human-resources management to analyzing internal operations. The programs also target specific industries, such as utilities, retail and manufacturing. Only Microsoft Corp. (MSFT), the largest software maker, offers as many categories of programs as Oracle.

Last Updated: December 18, 2009 00:01 EST

To contact the reporters on this story: Rochelle Garner in San Francisco at; Connie Guglielmo in San Francisco

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