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Oracle Tops Estimates as Companies Buy Databases for Cloud

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

March 24 (Bloomberg) -- Oracle Corp., the world’s top supplier of database software, forecast fourth-quarter profit that exceeded analysts’ predictions as companies stepped up spending on hardware and the programs needed to organize data.

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. Earnings on that basis were 54 cents a share in the period that ended Feb. 28, Redwood City, California-based Oracle said in a statement today. That also exceeded analysts’ projections.

Companies are bulking up on technology that helps customers expand in computing over the Internet, through the so-called cloud. Chief Executive Officer Larry Ellison reached a deal last quarter to weave Oracle products into Salesforce.com Inc.’s cloud services, helping fuel a 29 percent gain in new software license sales, a predictor of revenue.

“Software license revenue was much, much better than people expected,” said Jason Maynard, an analyst at Wells Fargo Securities in San Francisco, who rates Oracle “outperform.”

New license sales rose to $2.21 billion, bolstered by favorable currency exchange rates. That’s higher than Maynard’s $1.98 billion estimate.

Oracle gained to $33.05 in extended trading, after rising 73 cents to $32.14 at 4 p.m. New York time on the Nasdaq Stock Market. It has climbed 2.7 percent this year. Oracle raised its quarterly dividend 20 percent to 6 cents a share.

Sun Pays Off

Sales rose 37 percent to $8.76 billion. Net income was $2.12 billion, or 41 cents a share, compared with $1.19 billion, or 23 cents a share, a year earlier.

Ellison, who missed today's earnings conference call to serve on jury duty, is also benefiting from the acquisition last year of Sun Microsystems Inc. A focus on profitable, high-end hardware that runs Oracle software is helping the company meet its projection that the purchase will boost fiscal 2011 operating profit by $1.5 billion, Maynard 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.”

Hardware sales almost quadrupled to $1.04 billion, reflecting the addition of Sun’s servers, which help run corporate networks. Still, hardware sales fell about $75 million short of what some analysts projected, said Tony Ursillo, an analyst at Loomis Sayles & Co. in Boston. Oracle is phasing out some low-margin products acquired from Sun, he said.

“The only bone to pick was the slight shortfall in hardware revenue,” Ursillo said.

Japan

Results this quarter may be affected by the earthquake and resulting tsunami in Japan, analysts said. Oracle Japan represented 5 percent of total sales last fiscal year, or about $1.35 billion, said Patrick Walravens, an analyst at JMP Securities, citing filings. Based on that, Walravens expects $157 million in sales may be at risk in the fourth quarter. He rates Oracle “market outperform.”

“They’re the No. 1 database supplier and any time there’s a new IT initiative, it starts with a database,” Yun Kim, an analyst at Gleacher & Co. in New York, said in an interview before the results were released. “They can more than offset any disruption in Japan.” Kim has a “buy” rating on the shares and doesn’t own them.

Oracle said this week it would halt development of programs that run on Intel Corp.’s Itanium server chip. The move could affect sales of servers that use Itanium sold by Hewlett-Packard Co., the biggest customer of the chip.

Hewlett-Packard Rivalry

Hewlett-Packard and Oracle are increasingly competing in the burgeoning market for data centers, or large rooms of servers that deliver software and information globally.

Hewlett-Packard has termed Oracle’s plan a “shameless gambit” that jeopardizes customers and will cost hundreds of millions of dollars in productivity. Oracle claims that Intel plans to stop making the chip, an assertion that Intel denies, and has accused Hewlett-Packard of “knowingly withholding this information” from customers.

Under Ellison, Oracle has spent more than $42 billion on acquisitions since the beginning of 2005.

(Oracle held a conference call to discuss the results at 5 p.m. New York time today. To listen, go to LIVE <GO>.)

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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