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Update: Oracle meets 1Q forecasts, but disappoints on revenue

Oracle Corp. (Nasdaq: ORCL) shareholders acted on their disappointment about the quarter just ended instead of listening to the company's predictions about a bright future.

The database and enterprise software vendor on Tuesday reported fiscal first quarter profit of 16 cents per share was in line with analyst estimates, but the market expected Oracle to beat the consensus forecast. The company instead posted net income of $237 million and reported less-than-expected revenue growth for the second time in three quarters.

Immediately following the release of quarterly results, shares of Oracle plunged more than 3 points on extremely heavy after hours volume of more than 1 million shares. The stock had closed Tuesday's regular trading at 45 7/16, down 5/16 for the session.

Second quarter revenue increased 13 percent to $2 billion from $1.7 billion in the year ago period, when Oracle earned $195 million, or 13 cents per share. But software license and other revenue increased just 9 percent year-over-year, less than the 14 percent growth predicted by analyst consensus.

Many of Oracle's contracts don't close until the final weeks of the quarter, which has historically made it difficult to consistently predict the company's results. "We simply didn't get quite as many big deals in the quarter," chief financial officer Jeff Henley said, during a conference call with analysts.

Despite the first quarter softness, Oracle executives continued to predict a solid year. "One quarter does not make a trend," We think we're going to have a very strong year, we think the pipeline looks great," said Larry Ellison, chairman and CEO. "We're very optimistic about the year, we think we're going to have a very strong year, stronger than last year."

Ellison suggested that a recent overhaul of compensation plans for Oracle's sales force may have distracted the company's sales representatives in the first quarter. Ray Lane, Oracle's chief operating officer, also said Oracle's customers aren't as aggressive with software implementations during summer months.

Both those situations are now past, and growth looks to return strongly, the executives said. Several contracts carried over from the first quarter have now been signed, which should make for an extremely strong second quarter, executives said. "We wouldn't be making the statements we're making unless the pipelines supported 20 percent or better growth rate for the second quarter," Henley said.

But given the nature of Oracle's business, don't ever expect the company's earnings to be too predictable, Ellison said.

"We wish we could make it nice and smooth, I think I could sleep a lot better," he said. "The fact is, there will be some fluctuations. It's just our history, we fluctuate. But taking the long-term view ... we've been pretty consistent on an annual basis."

Applications software sales in the first quarter increased 11 percent year-over-year, to $109 million. Database sales increased 8 percent to $443 million. Total services revenue increased 16 percent from a year earlier, to $1.35 billion.

Database business remains robust largely because demand from Web organizations has offset a decline in business related to enterprise resource planning, Ellison said. Oracle now commands 93 percent of the database market for publicly-traded Web companies, he said.

The company continued to predict it eventually would cut annual costs by $1 billion as it transfers more functions to the Internet. Within 18 months, 80 percent of Oracle's sales will come through its web store as sales representatives drive customers in that direction, Ellison said.

Of 32 Wall Street firms surveyed by Zack's Investment Research, 13 rate Oracle the equivalent of a "strong buy", 13 recommend it as a "moderate buy", and six have "hold" advisories on the stock.