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Oracle beats profit expectations

update Quarterly earnings just exceed analysts' expectations, but revenue falls a bit short on lagging software sales.

update Oracle on Tuesday reported quarterly earnings just above analysts' expectations, but its revenue fell slightly short of Wall Street's projections, with sales of new software licenses coming in weaker than expected.

The company reported earnings of $990 million, or 19 cents a share, for the fourth quarter of its fiscal year--the period ended May 31--compared with $858 million, or 16 cents a share a year earlier. Analysts were expecting the company to report a net profit of 18 cents a share, according to First Call.

Oracle generated revenue of $3.08 billion in the quarter, up 9 percent from the $2.83 billion reported for the period last year. Wall Street had expected the company to report $3.1 billion, according to First Call.

Shares of Oracle fell in after-hours trading to $11.46 a share. The company closed the regular session Tuesday up 17 cents to $11.71 a share.

Applications, which make up about 20 percent of Oracle's business and are an area the company has earmarked as a growth driver, fell 6 percent from last year's performance for the same quarter. Analysts were expecting the applications business to increase, with some analysts projecting a 10 percent rise.

As part of Oracle's efforts to bolster its applications business, the database giant launched a hostile bid for rival PeopleSoft. The company is fighting the Justice Department's opposition to the deal in an antitrust trial in a U.S. District Court in San Francisco.

During an earnings conference call Tuesday afternoon, analysts asked whether the trial was distracting senior Oracle executives from closing applications deals, CEO Larry Ellison replied that it was not having an effect. An analyst who agreed blamed the industry in general, not Oracle's controversial acquisition effort.

"Their applications business is weak, but it's endemic of the entire applications industry. And because of the PeopleSoft trial, it's putting an even greater focus on that part of their business and is hurting their stock," said Charles Di Bona, an analyst with Sanford C. Bernstein & Co. "Investors are focusing on the tail and not the dog. Operationally, they're doing all the right things with their database business."

During the quarter, Oracle's database licenses rose 15 percent, surpassing some analysts' projections.

Wall Street had been anticipating a strong rise in database revenue, given the recent "database-led recovery" for Oracle. Earlier this month, IDC issued a study that found Oracle had the largest market share in databases.

"Since we introduced grid technology six months ago, our database new license sales have been growing at a rate of 15 percent," Ellison said. Grid computing takes the idle time of hundreds of databases and servers, pools them together, then allocates processing power for separate applications, adjusting for whichever system has the most demand at a particular time.

Oracle recently released its 10g database as part of its grid computing initiative. And its clustering software, Real Application Clusters (RAC), serves as the basis for the 10g grid features. Oracle is betting on the technology to fuel future growth.

"Our RAC sales have grown more than 60 percent this quarter and about 60 percent for the year," Ellison said. "Eventually, we believe there'll be very broad-based acceptance of RAC and grid."