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Oracle Earnings Rise but Software Sales Disappoint

Oracle reported a higher quarterly profit on Wednesday, but its 16 percent rise in new software sales was at the low end of expectations, and its shares fell steeply.

Oracle's headquarters in Redwood City, California.
Paul Sakuma
Oracle's headquarters in Redwood City, California.

The company's profit rose 25 percent to $1.34 billion, or 26 cents a share, in the fiscal third quarter, up from $1.03 billion, or 20 cents, a year earlier.

Sales of new software, which investors look to as a key indicator of the future financial performance of business software makers, rose to $1.6 billion in the quarter, from $1.4 billion a year earlier.

Oracle in December had forecast third-quarter new software sales to be 15 percent to 25 percent higher than a year earlier. Wall Street analysts were expecting the company to report growth around the mid-point of that range.

Oracle shares plunged more than 8 percent in extended trading Wednesday after finishing normal market hours down 0.66 percent at $20.94.

New software sales figures are a key indicator because the customers also sign maintenance contracts that cost 20 percent of the product price per year. Also, software makers get extra revenue from customers when they expand the number of workers using a computer program that they have already purchased.

"It looks like the revenues and the application licenses were a little light of expectations," said Brendan Barnicle, an analyst at Pacific Crest Securities. "The weakness was on the applications side, which would be where you would expect it given this kind of economic environment."

The company said it earned 30 cents a share excluding one-time items, up from 25 cents last year. Analysts polled by Thomson Financial expected earnings of 30 cents a share. Analyst estimates typically exclude one-time items.

Sales Projections for Current Quarter

Oracle expects current-quarter revenue from new software to increase 10 percent to 20 percent from a year earlier, Chief Financial Officer Safra Catz said on Wednesday.

The business software maker also expects fiscal fourth-quarter earnings per share of 43 cents to 44 cents before some costs, Catz told analysts on a conference call following Oracle's third-quarter earnings report.

Net income should be 37 cents to 38 cents per share in the fourth quarter, Catz said.

Shares of technology services company International Business Machinesdeclined as well after Oracle's results and were last down more than 0.5 percent in after-hours trading. U.S.-listed shares of German business software company SAPwere down more than 3 percent.

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