Oracle delivers; stock jumps

[notiCIas]

Oracle delivers; stock jumps

Database software giant reports strong results and raises 2006 guidance. Stock up 4%.

June 29, 2005: 8:45 AM EDT
By Paul R. La Monica, CNN/Money senior writer

NEW YORK (CNN/Money) - Oracle, one of the world's largest software companies, reported solid fiscal fourth quarter results Wednesday, citing healthy demand for its database software and success merging with PeopleSoft.

The company reported that earnings, not including certain one-time charges, increased by 36 percent from a year ago to 26 cents per share, three cents ahead of Wall Street's expectations.

Pro-forma sales were up 32 percent, to $4.06 billion, ahead of the consensus estimate of $3.89 billion. Revenues grew at a 26 percent rate, to $3.88 billion, after excluding certain items.

Oracle also raised its sales and earnings guidance for fiscal 2006, which ends next May. The company said during a conference call with analysts that full year sales should be between $14.2 billion and $14.4 billion and that pro-forma earnings would be between 78 cents and 81 cents a share.

Analysts were expecting revenues of $14.2 billion and earnings of 78 cents, according to Thomson/First Call.

For the company's first quarter, which ends in August, Oracle said it expects earnings of 14 cents, in line with estimates, and sales of $2.92 billion to $2.98 billion. Wall Street had been predicting revenues of $2.94 billion.

This news could be a good sign for the rest of the software sector -- Oracle's quarters end a month before most of its competitors so its results are typically viewed as a sign of what's to come.

Shares of Oracle (Research), which have languished for the past two years as it fought a hostile takeover battle for PeopleSoft, surged nearly 4 percent in pre-market trading Wednesday on the news.

SAP (Research), one of Oracle's top rivals, gained more than 1 percent before the market opened. Shares of Microsoft (Research), the world's largest software company, were up slightly as well. Smaller Oracle competitors such as Siebel Systems (Research) and BEA Systems (Research) also rose in pre-market trading.

Broad strength
Oracle reported strong results in its two main businesses. New license sales, a key measure of current software demand, increased 16 percent in Oracle's bread and butter database unit while new sales of applications software, grew 52 percent.

The strength in applications software, which helps businesses automate routine corporate tasks like customer relationship management, payrolls and supply chains, is particularly noteworthy, said Brendan Barnicle, an analyst with Pacific Crest Securities.

That's because applications software is a more lucrative area of the market than Oracle's maturing database business, which accounted for nearly 80 percent of new software license revenue in the fourth quarter. A desire to become a bigger player in the applications segment was the reason behind Oracle's purchase of PeopleSoft, which closed earlier this year.

"The rapid integration of PeopleSoft into our business contributed to the strong growth in both applications sales and profits that we saw in the quarter," said Safra Catz, a co-president of Oracle, in a written statement.

But Oracle has been criticized by some investors for its acquisition ambitions. In addition to PeopleSoft, Oracle recently outbid SAP to buy Retek, which develops software for retailers. Oracle CEO Larry Ellison has hinted that more deals are to come, which has some worried that Oracle will go on a lavish buying binge that won't pan out.

Ellison sought to allay some of these concerns during the conference call.

"We have no plans to buy anything that doesn't contribute to our long-term strategy and profit growth targets of 20 percent a year for the next five years. We are not going to do anything to jeopardize those goals," he said.

So the fourth-quarter results could help convince some skeptical investors that Oracle's acquisition strategy is working. "The quarter was very strong. If we could see another good quarter of applications revenue then that would demonstrate to people that the PeopleSoft acquisition made sense," said Barnicle.