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Oracle up on earnings

Oracle's stock jumps 4-1/2 points in trading following the company's leap in earnings during the third quarter.

Oracle's (ORCL) stock jumped 4-1/2 points in morning trading following the company's leap in earnings during the third quarter.

Oracle, which reported its earnings after the market's close, saw its stock get a further boost from yesterday, wrapping up at 36-1/8, up 2 points in heavy trading volume.

Analysts' upgrades also helped pump the stock. Cowen & Company analyst Drew Brosseau this morning raised his rating on the company to "strong buy" from "buy."

Robertson, Stephens & Company analyst Marshall Senk revised his earnings per share estimates for the fiscal fourth quarter to 52 cents a share from 51 cents, reflecting the potential for improvement in profit margins during the quarter due to hiring slowdowns.

Senk also upped fiscal 1997 estimates to $1.24 from $1.23, bumped fiscal 1998 to $1.69 from $1.66, and set a fiscal 1999 estimate at $2.17.

The database company reported a 16 percent increase in third-quarter earnings, quelling fears on Wall Street that the company would be hurt this quarter by a drop in database sales.

Including a one-time charge related to the acquisition of Datalogix, Oracle's net income for the quarter came in at $169 million, or 25 cents per share. This compares to net income of $146 million or 22 cents per share for the same period last year. Excluding the $37 million charge, net income increased to $193 million, or 29 cents a share, matching analysts' expectations, according to FirstCall.

Revenues increased to $1.37 billion from $1.02 billion for the same quarter last year.

Oracle reported that the total number of licenses of its core database product grew by 32 percent during the quarter, while the number of licenses for its business applications like accounting software were up 61 percent. Oracle's services including support, consulting, and education grew by 41 percent over the same quarter a year earlier.

These numbers assuaged anxieties that a slowdown evident in the company's second quarter continued through the third quarter, which ended February 28.

"We believe that Europe's stronger-than-expected results, coupled with continued solid growth in the Americas and Asia-Pacific, helped push the database business back over the industry average growth rate of 25 to 30 percent," said Senk in a report.

The company also recouped some growth in markets that cater to Europe, the Middle East, and Africa. Sales in these areas grew 40 percent in the third quarter, up from a 16 percent growth rate in the second quarter. Oracle's Asia-Pacific region was hurt by slowing sales in Japan, however, posting a 32 percent increase in the third quarter compared with 44 percent in the second.

Oracle, which controls nearly 50 percent of the Unix relational-database server market, reported in the second quarter only 24.4 percent growth in its database server business. That was down significantly from analysts' estimates of 38 percent for year-to-year growth and the company's previously reported average growth of 31 percent, according to a report issued by Salomon Brothers.

Many observers think that Oracle's slowdown was caused by a saturation of the relational-database market. But today's results appear to show that the company is back on its previous growth track.

"It is true that the market is slower relative to five years ago, but we think it is robust," said company CFO Jeff Henley. "As bandwidth gets bigger and cheaper, we will keep finding new markets because technology keeps getting cheaper and cheaper. We are always playing the game of creating new markets."

Oracle is growing especially quickly in one area: the market for database software running on Microsoft's Windows NT operating system. Sales for Windows NT servers are up 201 percent for the first nine months of fiscal 1997, according to Henley. Two-thirds of those sales were for the higher-priced version of the server designed to run entire enterprises, he added.

"We hope that Q3 results will begin to allay investor fears regarding the near term impact of Windows NT on Oracle's business," said Senk.

Oracle's sales of business applications like accounting and human resources software are also booming. The company reported last November that application sales have climbed 77 percent in the past year.

But there are still some factors for analysts to worry about moving forward. With a stripped-down, cheaper version of its NT database, Oracle is running into tough competition from Microsoft itself. The Redmond-based software giant is moving aggressively to capture workgroup and departmental database system sales with its SQL Server database.

"While we certainly expect that Microsoft will have an impact on the database market, we believe that the threat to Oracle is both longer term and overblown," added Senk.

That may be one significant reason why Oracle marketing gurus have decided to take the high road with the upcoming release of the Oracle 8.0 database server, a new major upgrade of its flagship software set to ship in June. With this release, Oracle will be aiming the database more toward high-end data warehousing and online analytical processing applications, which are most useful to large national or multinational businesses with more centralized information systems.

This same strategy, however, has also been adopted by IBM and Informix Software, two of Oracle's traditional rivals.

With the amount of total sales from this market shrinking, ever-intensifying competition could lead to price wars and that could erode profits in the future, according to analysts.