Oracle Gains on Report Showing Buoyant Business Software

Oracle Corp. CEO Larry Ellison
Larry Ellison, chief executive officer of Oracle Corp., speaks during the Oracle OpenWorld 2011 conference in San Francisco, California, U.S. Photographer: Tony Avelar/Bloomberg

Oracle Corp. rose to the highest in three months after reporting fiscal third-quarter profit and new license sales that topped analysts’ predictions, a sign of buoyant demand for programs that help companies organize data and run operations.

New software-license sales, a predictor of revenue growth, gained 7 percent to $2.37 billion, Redwood City, California-based Oracle said yesterday. Analysts had projected 3 percent growth, according to Raimo Lenschow, an analyst at Barclays Capital. Profit excluding certain costs advanced to 62 cents a share, topping 56 cents, the average analyst estimate, data compiled by Bloomberg show.

“I view this as a high-quality beat, and it certainly should be viewed as a positive catalyst” for Oracle shares, Joel Levington, a managing director at Brookfield Investment Management Inc. in New York, wrote in an e-mail. “The license number was about $100 million better than we expected.”

Oracle shares gained 1.8 percent to $30.64 at 9:43 a.m. New York time, after rising to $31.15 for the highest intraday level since Dec. 13. The stock had climbed 17 percent this year before today, compared with a 12 percent increase in the Standard & Poor’s 500 Index.

Oracle, the largest maker of database software, followed disappointing results the previous quarter by reorganizing its sales force, closing deals that were delayed and taking advantage of the improving economy, said Lenschow, who is based in New York and rates Oracle overweight.

SAP Remarks

SAP, the biggest maker of business applications used to manage financials, operations and human resources, fell 0.3 percent to 53.86 euros in Frankfurt.

Chief Executive Officer Larry Ellison said the company’s database and Java software, as well as human resources, financial management and customer management applications, will be available in cloud-computing versions in the fourth quarter.

He also attacked SAP’s plans to position its Hana data-analysis software as an alternative to Oracle’s database.

“I don’t believe SAP is equipped to compete with us in the database business,” Ellison said. “This is arguably our core competence.”

Oracle’s database software is used by companies to store information and process customer transactions.

Sales of database and middleware licenses increased 9 percent to $1.72 billion, while license sales of business applications rose 3 percent to $658 million.

Profit Forecast

Oracle has also been making acquisitions to broaden its offerings in cloud computing software delivered over the Web. It agreed last month to buy Taleo Corp., a maker of online human resources software, for $1.9 billion, its second Web software acquisition in less than four months.

Oracle acquired RightNow Technologies Inc. for $1.5 billion in January to gain online customer-service software. It’s also announced a service called the Oracle Public Cloud to run Fusion applications in Oracle’s data centers.

Profit this quarter, which ends in May, may also exceed analysts’ predictions. Excluding certain costs, profit will be 76 cents to 81 cents a share, Oracle said on a conference call yesterday. Analysts projected 76 cents. Sales will range from a 2 percent decline to a 2 percent gain, Oracle said. Analysts had predicted a 3 percent increase, to $11.2 billion.

“All we’ve really needed to do was focus on our execution and that we did,” co-President and Chief Financial Officer Safra Catz told analysts on the call. “It’s clear by these numbers that Q2 was actually an aberration.”

Even as software sales rebounded, hardware sales fell more than analysts predicted as Oracle sacrificed volume for higher margin products. The company bought computer maker Sun Microsystems two years ago and has been emphasizing sales of large systems for data processing at the expense of Sun’s less expensive gear.

“Next fiscal year our hardware business should be a growth story,” CEO Ellison told analysts on the call.

Hardware systems sales declined 16 percent to $869 million. Analysts were projecting an 11 percent drop, Lenschow said.

“They’ve got some work to do proving themselves to the market with this hardware business,” Josh Olson, an analyst at Edward Jones & Co. in Des Peres, Missouri, said in an interview.


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