Oracle First-quarter Profit, Shares Soar

Posted 20 September 2006 @ 11:19 am EET     Print     Reprint     E-Mail     Comments

SAN FRANCISCO (Reuters) - Oracle Corp. Chief Executive Larry Ellison showed his notorious competitive streak Tuesday, when the business software maker reported first-quarter profit jumped 29 percent and revenue soared 30 percent.

In a conference call with investors, Ellison crowed that Oracle had "leapfrogged" German software powerhouse SAP AG in numerous market segments. Oracle's rivals also include BEA Systems Inc. and IBM Corp. Ellison a college dropout who once rivaled Microsoft Corp.'s Bill Gates as the world's richest businessman — was also quick to attack SAP Chief Executive Henning Kagermann.

"SAP appears to be rethinking their strategy as they lose application market share to Oracle," Ellison said. "They've just announced that they are delaying the next version of SAP applications until 2010. That's a full two years behind Oracle's scheduled delivery and now Kagermann is talking about an acquisition strategy to augment SAP's slowing organic growth."

Walldorf, Germany-based SAP immediately fired back, saying Ellison's characterization of its product and acquisition strategy was a "complete misrepresentation of the facts." "Oracle's next-generation applications exist only in PowerPoint and won't be delivered until 2008 or beyond," SAP spokesman Bill Wohl said. "We have delivered on our roadmap consistently, Oracle is just making promises."

The skirmish comes after Oracle reported fiscal first-quarter profit was a record $670 million, or 13 cents a share, compared with $519 million, or 10 cents a share, in the same quarter of fiscal 2006.

Revenue for the three months ended Aug. 31 was a record $3.59 billion, up nearly 30 percent from $2.79 billion in the year-ago period, thanks to lucrative contracts with Wal-Mart Stores Inc. and other retailers.

Excluding acquisition expenses and other costs, the world's largest business software company earned $931 million, or 18 cents per share, up 26 percent from $738 million, or 14 cents per share, in the year-ago period.

On that basis, which does not conform to standard accounting methods, analysts expected the Redwood Shores, Calif.-based company to report a profit of $853.26 million, or 16 cents per share, on revenue of $3.47 billion.

New software license sales, which investors watch closely because they are a strong indicator of future performance, rose nearly 28 percent to $804 million from $629 million last year. Results for both periods include Oracle's $11.1 billion acquisition of PeopleSoft Inc.

"You've got to give credit where credit's due. It was a good quarter all across the board," said WR Hambrecht & Co. analyst Robert Stimson. "It was clean — almost too clean."

But other analysts said the company's performance — though admirable — didn't necessarily merit Ellison's braggadocio. Unlike industries with huge fixed costs, competitors in the software niche often gain or lose market share quickly, depending on one or two successful new products or an important merger or acquisition.

"SAP did a great job of kicking Oracle when it was down ... but Oracle couldn't stay weak forever," said Cowen and Co. analyst Peter L. Goldmacher. "Larry is probably the smartest guy in the business, and his M&A strategy was exceptionally well-thought out, and now we're seeing it exceptionally executed."

Oracle President and Chief Financial Officer Safra Catz forecast profit before one-time costs in the current quarter would be 17 cents per share, or 22 cents per share after one-time costs — exactly what analysts were expecting. Sales will rise 24 percent to 26 percent from the same period last year, she said.

Since early last year, Oracle has spent more than $20 billion acquiring competitors in the business software arena in a bid to combat slowing growth. Besides PeopleSoft, Oracle has also swallowed up former competitors including Siebel Systems Inc. for $6.1 billion and smaller companies such as Portal Software Inc. for a total of about $2 billion.

Ellison has said the takeovers will allow Oracle, whose 275,000 customers include 98 of the Fortune 100, to increase profit by 20 percent per year and overtake competitors.

Oracle released the results after the stock market closed. The company's shares closed Tuesday at $16.13, down 12 cents from Monday on the Nasdaq Stock Market. The stock gained $1.47 or 9.1 percent in after-hours trading.

SAP shares closed Tueday at $47.86, down 89 cents, or about 2 percent, from Monday. The stock gained another 13 cents in after-hours trading.