Oracle Tops Forecasts; License Growth to Weaken

Wednesday, 25 Jun 2008 | 6:01 PM ET

Oracle the world's third-largest software maker, reported a higher quarterly profit on Wednesday, beating Wall Street estimates, as new software license revenue climbed 27 percent.

But the company's shares dropped more than 3 percent in extended trading after Oracle's financial chief said the firm sees software license sales growth softening in the current quarter. (See more below.)

The business software giant reported fourth-quarter earnings that rose 27 percent to $2.04 billion, or 47 cents a share excluding one-time items, on a topline of $7.2 billion.

In the same period last year, the company earned $1.6 billion, or 37 cents a share, on sales of $5.883 billion.

A consensus estimate compiled by Thomson Reuters put Oracle's profit at 44 cents a share and its revenue at $6.864 billion.

"Nobody expected the May quarter to come in as strong as it did," said David Garrity, director of Research at Dinosaur Research.

Immediately following the earnings announcement, shares of Oracle rose about 1.5 percent in extended electronic trading after closing Wednesday up 1.44 percent at $22.55. Oracle shares jumped 21 percent in the quarter to finish May at $22.84.

Sales of new software licenses climbed 27 percent to $3.14 billion from $2.48 billion.

New software licenses are a key indicator of future financial results for software makers because customers also sign maintenance contracts that typically cost 20 percent of the product price per year. Customers may also expand the number of workers using a program that they have already purchased.

"These are strong results and evidence that Oracle's hard-charging sales culture and ever more diversified product line-up is paying off," said Andy Meidler, an analyst at Edward Jones. "Oracle and the rest of technology is an economically sensitive area. We think that software in particular is an area that should see strength, given its productivity enhancing ability."

Weaker Growth Ahead

Oracle expects weaker growth in new software licenses of 10 percent to 20 percent for the current quarter, Chief Financial Officer Safra Catz said on Wednesday.

Catz, also a co-president, told investors on a conference call following Oracle's fourth-quarter report that the company expected a seasonally weaker first quarter after a strong fourth quarter ending in May.

Oracle's first quarter ending in August faces tough comparisons in terms of license growth, which a year earlier jumped 35 percent, Catz said. The company reported 25 percent growth in new software licenses for the quarter ended in May.

Total revenue should rise 18 percent to 20 percent in the first quarter, compared with the same period a year earlier, Catz said. It expects fiscal first-quarter earnings of 26 cents to 27 cents per share, before one-time items, and net income of 17 cents to 18 cents per share, Catz said.

"We are aware of the broader economic environment in which we operate, and we can't predict the economy from one quarter to the next," Catz told investors.

- Wire services contributed to this report.

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