Saturday, September 20, 2008

Oracle First-Quarter Profit Beats Expectations

Recently, Oracle Corp., the Redwood Shores, California-based company, has reported its fiscal first-quarter earnings, which has beaten analysts’ expectations. The report has shown that big companies are still spending on software.

Wall Street took Oracle's positive tone at face value, sending up shares $1.10, or 5.9%, to $19.85 in after-hours trading. However, the company's weakening guidance for new software license sales may tell a different story. After the closing bell Thursday, the company said its fiscal first-quarter profit raised 28% as sales stayed steady despite turmoil in the U.S. economy. In addition, the business software manufacturer's net income for the three months ended Aug. 31 rose to $1.08 billion, or 21 cents per share, from $840 million, 16 cents per share, a year ago.

According to a Thomson Reuters poll, excluding expenses for employee stock options and acquisitions, Oracle posted earnings of 29 cents per share, two cents more than analysts had expected. Moreover, revenue increased 18 percent to $5.33 billion.

New software license sales, a measure closely watched by investors, increased 14%, within the 10% to 20% range Oracle had forecasted. Oracle said changes in foreign exchange rates accounted for 4 percentage points of the increase, less than the 5 percentage points it had originally expected. In addition, revenue from software license updates and product support increased 23% to $2.94 billion.

According to Chief Financial Officer Safra Catz, looking ahead to the current second quarter, Oracle expects new software license sales will grow by a potentially lesser amount: 2% to 12%, or 5% to 15% excluding the effect of currency fluctuations. In the same quarter last year, sales of new licenses raised 38%. Still, Oracle predicts adjusted earnings per share of 35 to 36 cents per share in the current quarter. Analysts were already expecting 35 cents per share.

Catz appeared unfazed about the ongoing turmoil in the financial sector, and confident that customers will not be cutting Oracle from their budgets. Catz said she believes that the company has so much momentum, such a broad product line. She added, if the customer is buying, those customers are likely to buy from Oracle. Moreover, she said that if those customers have to decide something not to spend on, it's probably with some smaller “person”.

Analyst Trip Chowdhry of Global Equities Research said he believes Oracle was struggling to keep its tone positive ahead of Oracle OpenWorld, a major conference that begins Saturday. The analyst said he believes Oracle's weak new software-license sales predict indicates a slowdown ahead for IT spending.

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