Oracle delivers solid third quarter

Fiscal third-quarter earnings were better than expected, while the strong dollar hits fourth-quarter outlook.
Written by Larry Dignan, Contributor

Oracle's fiscal third-quarter earnings were better than expected, and the company declared its first-ever dividend as a way to spin off its excess cash directly to shareholders.

The applications and database giant reported net income of US$1.33 billion, or US$0.26 a share, on revenue of US$5.45 billion, up slightly from the US$5.35 billion a year ago. The company said it was hit with currency fluctuations that shaved five cents a share off of its third-quarter earnings. Oracle added that non-GAAP earnings were US$0.35 a share compared to Wall Street estimates of US$0.32 a share.

Software revenue in the third quarter was up 5 percent to $4.4 billion, but new software licence sales were down 6 percent to US$1.5 billion. Analysts were expecting a sharper decline of about 12 percent. Software licence updates and support revenue was up 11 percent to US$2.9 billion.

Meanwhile, Oracle declared a dividend of US$0.05 a share payable each quarter.

Oracle executives said the third-quarter results were solid considering the currency fluctuations and economy.

"We're pleased with the quarter and delivered the highest third quarter operating margins in our history", said Safra Katz, Oracle's co-president, on a conference call with analysts. She said Oracle is "clearly gaining share", but continued to cite currency headwinds as a problem--the dollar has strengthened against foreign currencies in recent months, and that effectively lowers the company's growth. Katz added that currency fluctuations will cut about seven cents a share from Oracle's fourth-quarter earnings.

The guidance was a little lighter than expected. Oracle expects non-GAAP earnings in the fourth quarter to be US$0.42 a share to US$0.46 a share assuming current rates for the US dollar. In constant currency, fourth-quarter earnings will translate to US$0.49 a share to US$0.53 a share. Based on GAAP, Oracle's earnings will be US$0.34 a share to US$0.38 a share. Wall Street was expecting earnings of US$0.46 a share.

Total revenue for the fourth quarter is expected to be in a range from down 3 percent to up 2 percent. New software licences are expected to be down 17 percent to 27 percent.

As far as topics go, executives focused on middleware (BEA contributed US$140m in third-quarter sales) and the Exadata database machine venture with HP.

Chief executive Larry Ellison said the company is looking to grow via innovation and acquisition. He said Oracle's Fusion middleware business is a combination of the two, and the company's fastest growing unit. Ellison also focused on the Exadata database machine business, announced at Oracle OpenWorld, and touted it against Teradata's offerings.

President Charles Phillips said the Exadata pipeline is "the largest build I've ever seen", and added: "This is internally developed technology and why we spend US$3 billion a year on research and development".

When asked why Oracle's applications business held up better than SAP's, executives said SAP is more reliant on big mega deals. "We have a much broader portfolio than SAP. We're also more modern. I think we're going to be able to take market share from them for years to come", said Ellison, adding that "all of our applications are on-demand or cloud ready".

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