Oracle sales rise on database demand

Software maker meets earnings projects but applications business languishes with unit's sales down 36 percent.

Alorie Gilbert Staff Writer, CNET News.com
Alorie Gilbert
writes about software, spy chips and the high-tech workplace.
Alorie Gilbert
3 min read
Oracle reported a 16 percent rise in first-quarter profits on Tuesday, citing strong demand for its database software.

In the fiscal first quarter ended Aug. 31, Oracle posted $509 million in net income, a 16 percent jump over the same period last year. The Redwood Shores, Calif., business software maker earned 10 cents a share on $2.2 billion in revenue, lifting its earnings per share by 18 percent and its revenue by 7 percent year over year.

Oracle increased its new license revenue--a key growth metric--by 7 percent in the quarter, to $563 million, led by strong sales of the latest version of its database software, called 10g. Sales of business-management applications fell by 36 percent, to $69 million, continuing a trend of weakness in that segment for Oracle.

Oracle continues to rely on maintenance revenue, which includes product support and software updates, to boost its bottom line. The company said maintenance revenue grew by 14 percent compared to the same period last year, and now constitutes 53 percent of the company's total revenue, up from 50 percent of total revenue one year ago.

Analysts say Oracle is increasingly relying on maintenance revenue to offset a slowdown in new software license sales, which grew only 7 percent overall compared to last year.

Speaking on an analyst teleconference, Oracle executives said the company's applications division suffered from particularly weak demand in Europe and from aggressive discounting among rivals. The company is redoubling its efforts in that market, said Charles Phillips, Oracle co-president.

The company beat analyst estimates by a penny. Analysts polled by Thomson First Call expected Oracle to report a profit of 9 cents on revenue of $2.23 billion.

Oracle Chief Financial Officer Harry You issued a second-quarter forecast during the teleconference, predicting that the company would grow revenue by 3 percent to 7 percent compared with the same period last year, while new license revenue would either decline by as much as 2 percent or grow by as much as 8 percent. He said earnings per share would hit 13 cents in the second quarter, which ends Nov. 30--a 12 percent increase year over year.

Questioned about the possible decline in second-quarter new license revenue, the CFO said the company may face a number of potentially disruptive situations, including a possible "pause" in business spending due to the U.S presidential election in November, rising oil prices, compliance-work related to new accounting regulations, and the disappearance of favorable foreign exchange rates.

Oracle chairman Jeff Henley added that information technology buyers continue to be tough customers but that things are steady.

"The economy is not changing nor worsening dramatically," Henley said on the teleconference. "Business is still decent; it's competitive. People are still cautious, but we still see real growth ahead."

Conspicuously absent from the teleconference was Oracle Chief Executive Larry Ellison, who, it was noted, would no longer take part in the company's earnings calls. Ellison is apparently delegating that task to Henley and You, who joined Oracle in July to replace Henley as CFO.

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

Oracle is encouraged by last week's ruling on the antitrust charges and hopes to complete the PeopleSoft merger within a year, executives said. "We hope to begin discussions at some point with the board of PeopleSoft," Henley said.

The software maker's shares were up 38 cents over Tuesday's closing price in after-hours trading, hitting $10.93.

Wall Street firms were eagerly awaiting Oracle's earnings as signal of how the ailing business software industry is faring after a rash of disappointing financial results in July. A handful of companies, including Oracle, have continued to grow this year.

News.com's Mike Ricciuti contributed to this report.