Oracle beats expectations

The database giant jumps higher after reporting figures that were in line with bullish comments made by CEO Larry Ellison.

3 min read
Shares of Oracle spiked after the company reported yesterday a quarterly profit that beat Wall Street's earnings estimates, fueled by a sharp increase in database sales.

Oracle stock rose 11.86 percent, or 2.63 points, to 23.75. The stock has traded as high as 40.06 and low as 17.75 during the past 52 weeks.

Applications sales were flat, however, and the Asian economic slump remains a concern for the Redwood Shores company.

Oracle posted net income of 20 cents per share for the first quarter of 1999, which ended August 31, exceeding analysts' forecasts of 16 cents. Excluding a one-time charge, the company earned 15 cents a share during the same period a year ago.

Oracle's revenues for this quarter were $1.7 billion, a 28 percent increase over last year's $1.4 billion in revenues. Its net income was $195 million, compared with $150 million reported a year ago, excluding charges associated with the acquisition of Navio Communications.

Revenue from Oracle's database unit was $1.3 billion, a 25 percent rise over the like period a year ago. Jeff Henley, the company's chief financial officer, said the results demonstrate that database products, which account for the lion's share of Oracle's revenue stream, are in good shape.

"Hopefully we have put to bed the concerns raised about our database business," Henley said in an interview. "I think we have proven after three quarters in a row that our database business has a good luster to it."

During its first and second quarters last year, Oracle's database sales fell below expectations, prompting worries in some analysts.

But Henley said revenues from sales of applications, which have slid over past quarters, remained flat at $98 million. He attributed this quarter's applications performance to a 100 percent increase in revenues from the like quarter a year ago, but conceded that "execution issues" also contributed.

When combining related services such as tools products with applications sales, Oracle's revenues for the quarter topped $500 million, a 37 percent increase over the same quarter a year ago.

Another problem area for Oracle remains the market in Asia, where sales declined by 14 percent. "Asia will probably continue to founder for another year or so," he said, "so we're probably halfway through" the economic crisis there. Whereas Asia once accounted for some 15 percent of Oracle's revenue, the region now contributes to only 10 percent or 11 percent, he estimated.

Meanwhile, sales in the Americas led revenue growth, followed by Europe, the Middle East and Africa, which saw a rise of 33 percent.

Despite the turmoil, Henley is bullish about Oracle's future, saying that he expects margins to improve and sales of the next version of its database to sell well. Dubbed Oracle 8i, the next-generation database will embrace a number of Internet technologies, including Sun Microsystems' Java programming language. (See related story)

Oracle's rosy forecast echoes comments the company's chief executive made at a press gathering yesterday. Larry Ellison said that the database business has not yet matured, contrary to analysts' prognostications, and noted that Oracle now is competing with fewer competitors for database market share.

"I have only IBM and Microsoft to compete with, since Sybase and Informix are having a hard time sustaining their business," he added, hinting that with the trend toward Internet-based computing growing, Oracle will be a player with its database and application offerings.

With a steady rise in revenue during the past few years--topping $7 billion for fiscal 1998--Oracle is regarded as a powerhouse in the software industry. But Asia's economic woes and a database market that many say has reached a saturation point nevertheless have caused some analysts to turn bearish on Oracle as well as other database companies.

Last December, those trends caused Oracle to post disappointing earnings that touched off a sharp drop in the company's stock. Oracle has had a hard time recovering ever since, despite posting earnings that have met or exceeded analysts' forecasts. During the past year, Oracle has traded as high as 40.0625 and as low as 17.75. It closed at 22.125, up 0.3125.

Investment banking firm Goldman Sachs today raised its rating for Oracle to market outperform from market perform and Merrill Lynch said it raised its rating on Oracle to a buy from accumulate.

Reuters contributed to this report.