Oracle Rises as Forecast, Results Top Estimates on Cloud Computing Demand
Oracle Advances as Forecast Tops Estimates
Tony Avelar/Bloomberg
Larry Ellison, chief executive officer of Oracle Corp.
Larry Ellison, chief executive officer of Oracle Corp. Photographer: Tony Avelar/Bloomberg
Oracle Corp. (ORCL) rose in Nasdaq trading after forecasting fourth-quarter profit that topped analysts’ predictions, a sign of growing demand for database software as well as hardware added by the Sun Microsystems Inc. purchase.
Profit excluding acquisition costs and some other expenses will be 69 cents to 73 cents this quarter, surpassing the 66- cent average estimate of analysts surveyed by Bloomberg, Oracle said on a conference call yesterday. Earnings on that basis were 54 cents a share in the period that ended Feb. 28, also exceeding analysts’ projections.
Chief Executive Officer Larry Ellison is phasing out lower- margin products from Sun, acquired last year, to wring more profit from high-end hardware. A boom in demand for Oracle’s databases used in cloud computing -- the delivery of software and storage over the Internet -- also contributed to a 29 percent gain in new license sales, a predictor of revenue.
“The future looks bright,” said Patrick Walravens, an analyst at JMP Securities in San Francisco, who rates Oracle “market outperform.” Ellison “has focused on making the Sun business smaller and much more profitable.”
Sales climbed 37 percent to $8.76 billion last quarter. Net income was $2.12 billion, or 41 cents a share, compared with $1.19 billion, or 23 cents a share, a year earlier.
Oracle rose 50 cents, or 1.6 percent, to $32.64 at 4 p.m. New York time on the Nasdaq Stock Market. Oracle also raised its quarterly dividend 20 percent yesterday, to 6 cents a share.
Room for Margins
When Oracle, the largest supplier of database software, purchased Sun, analysts fretted that its margins would be squeezed by the addition of less profitable hardware. Oracle Co- President Safra Catz took pains to allay that concern on the conference call, saying gross margin in the hardware unit rose to 55 percent last quarter from 53 percent the previous quarter. It will continue to rise in coming periods, she predicted.
“It’s becoming clear that we’re going to be able to ultimately bring the margins very close, if not even more than they ever were when we were just a software business,” Catz said. “We still think there’s actually quite a bit of room.”
In the quarter that ended November 2009, the last period before the close of the Sun acquisition, Oracle had gross margins of 81 percent, according to Bloomberg data.
The company expects to exceed its goal of boosting operating profit by $1.5 billion in the fiscal year after the deal closed, Catz said yesterday.
Avoiding ‘Missteps’
Oracle reports sales that include deferred revenue from acquired companies and don’t conform to generally accepted accounting principles. On that basis, sales in the fourth quarter will increase 9 percent to 13 percent from a year earlier, Catz said.
New software license sales rose to $2.21 billion last quarter, surpassing the $1.98 billion estimate of Jason Maynard, an analyst at Wells Fargo Securities in San Francisco, who rates Oracle “outperform.”
“Software license revenue was much, much better than people expected,” Maynard said.
New software license sales will climb 9 percent to 19 percent this quarter, Catz forecast.
Ellison is benefiting from the Sun deal by focusing on profitable, high-end hardware that runs Oracle software, Maynard said. Ellison missed the conference call yesterday because he was serving at jury duty, the company said.
“They’ve done a remarkably good job at executing and not having any major missteps,” he said. “What’s made them loved among investors is they don’t make mistakes. A lot of other companies get easily distracted.”
To contact the reporters on this story: Dina Bass in Seattle at dbass2@bloomberg.net
To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net
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