Oracle (Nasdaq:ORCL), known mostly for its business software systems, saw a nearly 50% surge in revenue and a 20% rise in net income for its first quarter. The company reaped the rewards of rising demand for its business software and servers.
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Software Licenses Lead
Software license sales gained by 25%, and license renewals added a 12% increase to revenues. New co-president Mark Hurd, the controversial ex-Hewlett Packard (NYSE:HPQ) CEO, pointed out that the 25% increase in new license sales is an unusually strong performance. Total GAPP revenue for the quarter was $7.5 billion, up from $5.054 billion in last year's first quarter. Net income was $1.4 billion, or 27 cents a share on a GAPP basis, compared to $1.124 billion, or 22 cents a share. Excluding charges, on a non-GAPP basis, income was $2.1 billion or 42 cents per share.
Let Sun Shine
Sun Microsystems, purchased by Oracle for $7.4 billion in a deal completed in January, is still being integrated into Oracle. The company expects to double its hardware business, as Sun is primarily known for its servers. At Oracle's Openworld conference, the company expects to announce high-end combination systems of Sun's hardware with Oracle's software. Oracle's brash CEO Larry Ellison threw down the challenge to rival SAP AG (NYSE:SAP), saying its new Fusion software platform will be redone in Java, while indicating it was foolish for SAP to challenge Oracle and even try to compete against this. Who says tech wars are dull?
One analyst noted that Oracle is the best indicator of overall spending in the software space right now. Companies require software projects, database programs, as well as the managing and servicing of these, all of which benefit Oracle. Other areas of information technology are struggling, such as telecommunications network equipment company Ciena (Nasdaq:CIEN). Ciena recently reported another loss with its recent third-quarter results. SAP, with its leading business applications, and Oracle, as the leading database software company, face much stronger demand for their products. IP network provider Juniper Networks (NYSE:JNPR) shows yet another side of the IT space right now, as it is getting better earnings results than Ciena. But the strongest IT area is where Oracle is, with its increasing integration in business software, hardware, platforms and use.
Oracle Moves Criticized
Some observers are concerned, now that Oracle is in the hardware game with its Sun Microsystems acquisition, that it's going away from its strength. There's also concern about the addition of Mark Hurd, whether he will add to the management team or become a polarizing force. Hewlett Packard is suing Hurd, so he remains a lively topic if nothing else, though many industry observers feel he's more suited to the Oracle culture and will fit there better. Time will tell how well he shares power and plays with others.
The Bottom Line
What's clear is that CEO Larry Ellison is still moving Oracle aggressively forward. With its add-on of Sun, as well as its $4 billion scheduled for R&D this year, along with its considerable advantage of integrated services beyond the selling of software platforms, Oracle is going to remain a tech titan that grows. The company is optimistic, near term, and why shouldn't it be? It predicted sales will increase 43-47% in the next quarter, with EPS of 45-47 cents. The stock's valuation is not out of line, at nearly 21-times earnings, but the forward multiple is only 13, a bargain. Better yet, catch Oracle on a price drop; it'll be a good catch for investors. (For more, see Technology Sector Funds.)
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