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Oracle topped analysts' sales and earnings estimates again in its third fiscal quarter thanks to better than expected sales of software products and immediate contributions from Sun Microsystems, which it acquired in January,
For the quarter ended February 28, 2010, Oracle reported income of $1.2 billion, or $0.23 a share, including one-time charges and expenses, on sales of $6.5 billion. The $6.5 billion in sales represents a 17 percent improvement from the $5.5 billion in revenue in the same quarter last year. It reported earnings of $1.3 billion, or $0.26 a share, in the 2009 quarter.
Excluding one-time charges, Oracle (NASDAQ: ORCL) pocketed $0.38 a share, a tad better the consensus estimate of $0.37 a share established by analysts surveyed by Zacks Investment Research.
Software license sales improved 13 percent to $1.7 billion from the third fiscal quarter of last year, an improvement that company officials said was a direct result of taking market share from SAP and strong sales derived from its $7.4 billion acquisition of Sun Microsystems.
Software license updates and product support sales rose 13 percent to $3.3 billion.
A little gloating
"As you can all see, we had another fantastic quarter," Oracle co-President Safra Catz said during a conference call with analysts. "The results for our applications business were nothing short of stunning, up 21 percent, while SAP continues to shrink at a double-digit pace."
"No wonder SAP is so unhappy," she added.
While Oracle continues to exceed investors' expectations, rival SAP (NYSE: SAP) has shaken up its executive management team, posted less-than-scintillating sales and earnings and struggled to deliver a competitive on-demand application suite.
CEO Larry Ellison didn't mince words in his comments to analysts, declaring his company was more than ready to take on IBM in the high-end server market and supplant SAP as the world's largest business applications vendor.
"In applications, SAP is the leader, but they're still using ABAP, a German programming language that is 25 years old, as the center of their application platform," he said. "We're using Java as ours and we will deliver Fusion applications written in Java for accounting, supply chain, HR, sales automation and service automation with a modern service oriented architecture.
"We're already competing quite well with SAP now," he added. "We think SAP is vulnerable and we can take them on in a variety of industries. We will sell software directly, the old-fashioned way that's still the most popular by the way, and sell it with our hardware and on the cloud."
Growing hardware business
Company officials said its data warehousing and OTLP appliance Exadata is the "fastest growing product in Oracle's history" and exited the quarter with a $400 million in back orders and fourth-quarter bookings of nearly $100 million.
Ellison said Oracle will continue putting together clusters of Sun hardware and its database and middleware software—as it has with Exadata—to take on IBM's System p server line.
"It's not uncommon for an Exadata benchmark to beat them by a factor of 10," he said. "We will deliver stunning performance using essentially commodity parts. Not only do we run faster than IBM's p Series, but our machines are more reliable because there's no single point of failure."
"The Sun integration is going even better than we expected," Catz said. "The integration is off to a very strong start and we continue to expect Sun will contribute $1.5 billion in operating income in 2011 and $2 billion in 2012."
She said Oracle will employ a "more profit aware model" than Sun used and would no longer "sell products at a loss as Sun did." One month of Sun sales contributed $596 million to Oracle's total revenue in the quarter, "much better" than Oracle had anticipated.
"This change will immediately mean more profit on lower revenues," Catz said. "We're now compensating salespeople on margin, not just revenue. These two changes will baseline our hardware sales and profits so they will grow significantly."
Company officials said its hardware systems sales, which includes Sun devices for only about a third of the quarter, was $458 million, or 7 percent of its total revenue in the quarter.
Applications revenue rallied up 21 percent to $477 million while database and middleware sales improved 11 percent to $1.24 billion.
Looking ahead, Oracle told analysts to expect new software revenue to increase between 3 percent and 13 percent in the fourth fiscal quarter and predicted hardware sales of between $1.2 billion and $1.3 billion in the quarter.
Earnings-per-share for the quarter are now pegged for between $0.52 and $0.56 a share, excluding one-time expenses, up from $0.46 in the fourth quarter of last year.
Oracle also threw a bone to its investors, declaring a $0.05 per share dividend for all shareholders of record on April 14.
Oracle shares moved up $0.28 a share, or 1 percent, to $26.04 ahead of the earnings report before falling $0.16 a share in after-hours trading, likely a reaction to the 10 percent decline in net income compared to the prior year despite the solid top-line growth.
Oracle shares peaked at $26.25 a share earlier this week after falling to a low of $17.25 last March.
Twenty-five of the 34 analysts tracking the stock rate it either a "buy" or "strong buy" and five analysts have raised their full-year earnings estimates in the past month.