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Oracle meets rosy expectations

Despite profits being hurt by a one-time charge, Oracle reports a net first-quarter income of $40.5 million. But analysts say the company's future success depends on its ability to evolve.

On an operating level, Oracle (ORCL) today hit analysts' expectations, but profits were dragged down by a one-time charge associated with acquisitions made during the quarter.

Oracle reported net first-quarter income of $40.5 million, or 4 cents a share, compared with net income of $112.8 million, or 11 cents a share, for the same quarter a year ago.

Excluding the charges, the company would have reported a 36 percent jump in Oracle at a glance net income to $149.8 million, or 15 cents a share--exactly in line with predictions from First Call.

Revenue for the quarter was $1.36 billion, up 30 percent from the $1.05 billion in revenue reported during the same period one year ago.

Oracle?s stock gained 1-9/16 to close at 39-9/16, up from yesterday?s close of 38.

Oracle?s steady growth was led by application sales, which Oracle said grew 96 percent. Revenue from services such as customer support was up 42 percent, while licensing and other sales grew by 15 percent, the company added.

Two analysts said Oracle?s success in providing new services and products tailored to specific industries would drive growth. For years, they said, Oracle was known for its general-purpose applications, a model that has become less viable over time.

"Oracle has a healthy future, especially as it makes the transition to becoming more of an applications company and a total solutions company," said Esther Schreiber, an analyst at Credit Suisse First Boston.

"They're focusing more on a lot of the specific needs that companies within certain industries, like telecommunications, have," said Jim Pickrel, an analyst at Hambrecht & Quist. During the quarter, Pickrel added, Oracle has realigned its sales and support groups around the so-called vertical market concept.

In August, Oracle acquired financial software maker Treasury Services. And yesterday, the company announced it will provide products to serve the aerospace, defense, automotive, and sales and customer support industries.

First Boston's Schreiber said Oracle sales in Asian Pacific markets remain sluggish due to currency problems and recent employee turnover there. Server growth also is slowing, she added.

While revenues from applications grew by 96 percent, sales from Oracle's database server products were up only 6 percent, the company told analysts in a conference call. The weak database performance worried some Oracle-watchers.

Jeffrey Henley, Oracle?s chief financial officer, said the high rate of growth for applications and the lower rate of growth for database sales were disproportionate to the first quarter last year, when database sales were unusually high and applications were low.

"An awful lot of the database [sales are] being measured up to a very strong period a year ago," Henley said, adding that applications growth conversely appears higher because of a slump last year.

"We?ve told everyone to expect our database business to get back to a more normal rate of growth in the second quarter," Henley said. "We think we?re going to grow business in databases and we?re going to grow business in applications."

Geographically, Oracle said its revenue was impacted negatively through currency translations. EMEA (Europe, Middle East and Africa) had the greatest currency impact, reporting revenue growth at 20 percent, or 33 percent in local currencies. Asia Pacific reported revenue growth at 32 percent, or 43 percent in local currencies. Americas reported revenue growth, up 36 percent, or 37 percent in local currencies, vs. the same period last year.