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Oracle hired Mark Hurd, the former CEO of Hewlett-Packard Co., on Sept. 6 as co-president responsible for sales, marketing and customer support. Kimberly White/Bloomberg
Sept. 16 (Bloomberg) -- Brent Thill, analyst at UBS AG, talks about first-quarter earnings at Oracle Corp. Oracle reported profit and revenue that beat analysts’ estimates as sales of database software and Sun Microsystems server computers helped it capitalize on a recovery in information-technology spending. Thill talks with Carol Massar and Matt Miller on Bloomberg Television's "Street Smart." (Source: Bloomberg)
Sept. 16 (Bloomberg) -- Renny Ponvert, chief executive officer of Management CV, talks about Oracle Corp.'s decision to hire Mark Hurd, who formerly ran Hewlett-Packard Co., as co-president. Ponvert speaks with Pimm Fox on Bloomberg Television's "Taking Stock." (Source: Bloomberg)
Oracle Corp., the second-largest software maker, rose in late trading yesterday after its first- quarter results and sales forecast topped analysts’ estimates, helped by an expansion into computer hardware.
Excluding acquisition costs and other expenses, earnings climbed to 42 cents a share last quarter, beating the 37-cent average of projections compiled by Bloomberg. Oracle indicated that sales will be at least $8.4 billion in the current period. Analysts had estimated $8.21 billion.
The company is counting on hardware to spur a new wave of growth, underpinned by its acquisition of Sun Microsystems Inc. this year. Oracle is assembling more prepackaged systems, which combine its software with Sun’s servers. By adding salespeople and engineers and moving away from low-end machines, Oracle aims to squeeze more sales and profit from hardware, which generated $1.7 billion last quarter.
“We can dramatically improve margins and double the top line,” Chief Executive Officer Larry Ellison said on a conference call, without giving a timeframe for the growth.
Oracle rose 4.7 percent to $26.55 in extended trading. The shares, up 3.4 percent this year, had closed at $25.36 on the Nasdaq Stock Market.
The company, based in Redwood City, California, reports sales that include deferred revenue from acquired businesses and don’t conform to generally accepted accounting principles. On that basis, sales in the period ended Aug. 31 jumped 50 percent to $7.59 billion. Analysts on average predicted $7.32 billion.
Bigger Deals
“Deals seem to be getting a little bigger,” President Safra Catz said on the conference call.
Oracle is capitalizing on a recovery in corporate information-technology spending by offering a range of software products assembled through acquisitions. The hiring this month of Mark Hurd, who formerly ran Hewlett-Packard Co., may help the company manage Sun and expand into new areas of hardware. Oracle bought Sun for $7.3 billion in January.
Oracle’s earnings add evidence that corporate spending has supplanted consumers as the main driver of demand for computers and software.
Intel Corp., the largest supplier of computer chips, said on Aug. 27 that its third-quarter revenue will be below its previous forecast, partly because of weaker-than-expected demand for consumer personal computers. Dell Inc. also cited weakness in U.S. consumer demand for PCs when its second-quarter gross margin fell short of projections.
Profit Forecast
Excluding some costs, profit will be 45 cents to 47 cents a share this quarter, Catz said. Analysts had estimated 45 cents. Sales will grow 43 percent to 47 percent from a year earlier, excluding the effect of currency fluctuations, she said.
“They surprised across the board, line by line,” said Sasa Zorovic, an analyst at Janney Montgomery Scott LLC in Boston. He recommends buying the shares and doesn’t own them. “IT spending is recovering, and in the past couple of quarters Oracle has done better than the overall IT environment.”
Oracle is the largest seller of database software, second to SAP AG in business applications, and the No. 2 provider of application-connecting middleware -- after International Business Machines Corp. Its goal for Sun, a money loser at the time of the acquisition, is to contribute $1.5 billion in operating income during its first year in the fold.
Combined Products
The company will unveil “two high-end systems that combine Sun hardware with Oracle software” at next’s weeks Oracle OpenWorld show in San Francisco, Hurd said in a statement.
Investors are looking for clues from Oracle about whether Hurd’s hiring signals more hardware acquisitions, Zorovic said.
“To what extent will Sun be the first of many in hardware?” Zorovic said.
Net income in the fiscal first quarter rose 20 percent to $1.35 billion, or 27 cents a share, from $1.12 billion, or 22 cents, a year earlier. Sales in the year-earlier period were $5.06 billion.
New software license sales, an indicator of future revenue, rose 25 percent to $1.29 billion. David Hilal, an analyst at FBR Capital Markets in Arlington, Virginia, predicted $1.12 billion.
Sales of new database and middleware licenses rose 32 percent to $937 million. Business applications license revenue increased 10 percent to $349 million.
Corporate technology spending will increase 2.9 percent this year to more than $2.4 trillion, after a 5.9 percent decline last year, according to market-research firm Gartner Inc. in Stamford, Connecticut.
Support Contracts
Ellison has bought more than 65 companies since early 2005. That’s increased the types of programs Oracle can sell and added customers who eventually buy support contracts, providing a stream of profitable revenue.
Oracle hired Hurd on Sept. 6 as a co-president responsible for sales, marketing and customer support. HP filed a lawsuit on Sept. 7 seeking to block Hurd from working at Oracle. Serving as an Oracle president would make it “impossible” for him to avoid using or disclosing HP’s trade secrets and confidential information, according to the state court complaint.
The suit hasn’t prevented Hurd from starting work at Oracle.
“Hurd fits well into Oracle’s next challenge -- competing in the market for integrated hardware and software systems,” FBR’s Hilal said in a note to clients. He rates Oracle “outperform.”
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