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Oracle Rises After Earnings Forecasts Top Predictions

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Oracle CEO Larry Ellison
Larry Ellison, chief executive officer of Oracle Corp. Photographer: Tony Avelar/Bloomberg

Dec. 17 (Bloomberg) -- Oracle Corp., the second-largest software maker, rose in Nasdaq trading after forecasting profit for this quarter that may top analysts’ predictions, a sign it’s benefiting from an acquisition-fueled expansion into hardware.

Profit excluding certain expenses will be 48 cents to 50 cents a share, Oracle Co-President Safra Catz said yesterday on a conference call. That exceeds the 47-cent average of estimates compiled by Bloomberg. The forecast followed a report showing profit rose to 51 cents in the period ended Nov. 30, higher than analysts’ average prediction of 46 cents.

Chief Executive Officer Larry Ellison has bulked up in hardware to make Oracle a one-stop business computing shop, and he’s making headway on a projection that this year’s purchase of Sun Microsystems Inc. will boost fiscal 2011 operating profit by $1.5 billion. That’s allayed concern he overreached by buying more than 65 companies since 2005, said Jason Maynard, an analyst at Wells Fargo Securities in Santa Monica, California.

“Years ago, people didn’t believe in the strategy,” said Maynard, who rates Oracle “outperform.” “There were a lot of doubters on the Street. People have flipped.”

Oracle, based in Redwood City, California, gained $1.19, or 3.9 percent, to $31.46 in Nasdaq Stock Market trading. The shares have climbed 28 percent this year.

For the third quarter, which ends in February, Oracle forecast revenue growth of 31 percent to 35 percent, assuming current exchange rates, ahead of analysts’ average prediction that sales would rise 30 percent to $8.4 billion.

Sales Harbinger

New license sales, a predictor of revenue, will rise 10 percent to 20 percent, Oracle said. That indicates an increase to as high as $2.1 billion. Maynard had predicted an 11 percent gain, to $1.9 billion. Last quarter, new license sales grew 21 percent to $2 billion. Maynard estimated $1.85 billion.

“The strength in the quarter was very broad-based,” Co-President Catz said on the conference call.

The company reports sales that include deferred revenue from acquired companies and don’t conform to generally accepted accounting principles. On that basis, sales increased to $8.65 billion in the second quarter, compared with $8.34 billion, the average projection in a Bloomberg survey of analysts.

In the coming months, Oracle will release new versions of its business applications developed under a project known as Fusion.

Ellison said the new software, which companies can run in their data centers or access via the Web, would strengthen Oracle’s position against SAP AG, Salesforce.com Inc. and closely held Workday Inc.

Share Gains Predicted

“You’re just seeing the beginning of our share gains in applications,” Ellison said on the conference call.

Further increases in Oracle’s stock will hinge on whether the company can keep drawing customers to its applications, the programs that help businesses handle such tasks as payroll and tracking sales leads, said Walter Pritchard, an analyst at Citigroup Inc. in San Francisco. Sales of new applications licenses rose 21 percent to $579 million last quarter.

“The biggest swing factor on shares is sustainability of strong second-quarter apps performance,” he said in an e-mail. Pritchard recommends buying Oracle shares and doesn’t own them.

Oracle, which ranks second to Microsoft Corp. in software sales, also said it will issue a dividend of 5 cents a share. The dividend will be payable on Feb. 9 to holders of shares as of Jan. 19.

Under Ellison, Oracle has spent more than $42 billion on acquisitions since the beginning of 2005. The stock has more than doubled in the past five years, compared with an 18 percent gain for the S&P technology index.

New Rivals

The buying spree has brought Oracle into closer competition with SAP, Hewlett-Packard Co. and International Business Machines Corp. HP, the world’s largest computer maker, forecast first-quarter profit last month that exceeded analysts’ estimates.

On Nov. 24, Oracle won a $1.3 billion jury award in a federal copyright infringement case against SAP.

Net income in the second quarter rose 28 percent to $1.87 billion, or 37 cents a share, from $1.46 billion, or 29 cents, a year earlier, Oracle said.

(To listen to a replay of Oracle’s conference call on the results, go to LIVE <GO>.)

To contact the reporters on this story: Aaron Ricadela in San Francisco at aricadela@bloomberg.net

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net

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