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Oracle beats outlook

Dec 19 2012 08:06 Reuters


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Boston/San Francisco - Technology giant Oracle Corp said software sales growth will stay strong into the new year despite fears that there could be big tax hikes and US government spending cuts that could cause a slump in spending by customers.

Shares of the world's No. 3 software maker rose 1.3% after it reported fiscal second-quarter revenue and earnings that surpassed Wall Street forecasts.

Oracle President Safra Catz told investors that businesses were still looking to spend money already allocated to 2012 technology budgets.

"Folks want to close deals," she told analysts on a conference call following the earnings release on Tuesday. There has been "no negative impact on pricing. Pricing remains very good for us."

Oracle said software sales would grow 3 to 13% this quarter, which runs through February. It expects fiscal third-quarter hardware products sales to be flat to down 10% from a year ago.

The company's software and hardware forecasts were roughly in line with Wall Street expectations, according to FBR Markets analyst Daniel Ives.

Oracle reported that software sales and cloud software subscriptions rose 17% from a year earlier to $2.4bn in its fiscal second quarter ended November 30.

It had forecast that new software sales would climb 5 to 15% from a year earlier, when it last reported earnings on September 20.

"I would call it an early Christmas present," Ives said. "It's a positive sign for the overall technology sector."

Investors pay close attention to new software sales because they generate high-margin, long-term maintenance contracts and are an important gauge of the company's future profits.

Oracle posted a second-quarter profit, excluding items, of 64 cents per share, beating the average analyst forecast of 61 cents according to Thomson Reuters I/B/E/S.

Jefferies & Co analyst Ross MacMillan said Oracle's results are encouraging for other makers of business software, many of which end their quarter on December 31.

Off a cliff

Some investors have worried that corporations would postpone spending on technology projects because of uncertainty over the year-end deadline for Congress and US President Barack Obama to reach a compromise to thwart an automatic rise in tax rates and government spending cuts.

Failing to reach a deal, economists say, could lead to another US recession. Catz said Oracle's customers are still spending on software.

"What's going on in Washington - I don't know who it's necessarily influencing today. But I can tell you, our customers have been spending money with us even here in December."

On Tuesday, Oracle forecast earnings per share in the current fiscal third quarter of 64 to 68 cents, excluding items. That was about level with an average forecast for 66 cents.

"It tells you that there's still money being spent by enterprises on software. It's not like the world has ground to a halt," MacMillan said.

The picture was not so bright for Oracle's troubled hardware division, which it acquired with its $5.6bn purchase of Sun Microsystems in January 2010. The division's revenue has fallen every quarter since it closed that deal.

Hardware systems product sales fell 23% from a year earlier to $734m. Oracle had forecast that hardware sales would drop between 8 and 18%.

Chief Executive Larry Ellison told analysts he expected hardware systems revenue to start growing in the fiscal fourth quarter which begins March 1.

Oracle shares rose to $33.30 in extended trade after closing at $32.88 on Nasdaq.

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