Oracle still looks strong despite 2Q earnings dip

SAN FRANCISCO - Oracle Corp.’s earnings are weakening for the first time in years, but the business software maker still may be in reasonably good shape despite the economy’s terrible condition.

By (AP)

Published: Fri 19 Dec 2008, 11:56 AM

Last updated: Sun 5 Apr 2015, 11:14 AM

After buying dozens of smaller rivals since 2004, Oracle has assembled a lucrative line of recurring revenue from product updates to help tide it over even if its sales of new software licenses deteriorate in the deepening recession.

Oracle’s maintenance contracts account for about half of its business, generating more than $11 billion in annual revenue — a cushion that so for has enabled Oracle to avoid the mass layoffs and other austerity measures being imposed at many other technology companies.

“From an investment perspective, I can’t think of a better place to be hiding out than Oracle in this uncertain technology environment,” said Pacific Crest Securities analyst Brendan Barnicle.

Some investors seemed to agree late Thursday after Oracle’s second quarter earnings mirrored analyst estimates and management felt confident enough about the next few months to provide guidance in line with Wall Street’s projections. Oracle shares gained 49 cents, or nearly 3 percent, in extended trading after finishing the regular session at $16.61, down 13 cents.

The Redwood Shores-based company said it earned $1.3 billion, or 25 cents per share in the three months ended in November. The net income dipped by $7 million from the same time last year while the earnings per share remained the same.

Although it was negligible, the erosion marked Oracle’s first quarterly profit decline in three years.

But Oracle’s profit in the latest quarter would have risen by 10 percent, if not for wild currency swings driven by the biggest financial crisis since the Great Depression.

Investors focus on another number anyway — Oracle’s earnings after subtracting expenses for employee stock compensation and its acquisition spree.

Excluding those factors, Oracle said it would made 34 cents per share, matching the average estimate among analysts polled by Thomson Reuters.

Oracle’s revenue of $5.61 billion, up 6 percent from last year, didn’t live up to analyst expectations. On average, analysts had projected revenue of $5.84 billion.

Oracle’s sales of new product licenses — a key measure of a software maker’s health — also slipped. Software sales totaled $1.63 billion, down 3 percent from last year.

In September, management had predicted that its software license would rise anywhere from 2 percent to 12 percent.

But that forecast didn’t envision the dollar rising as rapidly as it did against the euro and other key currencies during October and November after a string of failures and other troubles at major banks triggered a financial panic.

Besides hurting its international sales, the stronger dollar had the effect of exposing more of Oracle’s sales to higher U.S. tax rates — a factor that deflated the company’s earnings.

“Now, of course, obviously currency was not the only news going on in the quarter in the outside world and yet we feel just extremely good about our results,” Safra Catz, Oracle’s co-president, told analysts in a Thursday conference call.

Oracle projected adjusted earnings of 34 cents to 36 cents per share in the current quarter ending in February. Analysts, on average, expect 34 cents per share. The company anticipates its revenue in the current quarter will rise 8 percent to 11 percent, also falling within the range of analyst expectations.

If currencies remain at the same level in the current quarter as they were in the prior year, Oracle believes its sales of new licenses should range anywhere from a 2 percent decrease to an 8 percent increase.

Other major technology companies have been laying off workers and trimming expenses in other areas to shore up profits, but Oracle isn’t making any radical changes yet. In another bullish sign, Oracle is still expanding its payroll. The company ended November with 86,657 employees, adding about 1,500 workers since August.

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