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Oracle Shares Sag on Slim Profit Growth

Posted on: Friday, 23 September 2005, 18:00 CDT

SAN FRANCISCO - Oracle Corp. shares fell more than 7 percent Friday after the business software maker reported slim overall profit growth for its first fiscal quarter and tepid sales expansion in its key database software business.

Oracle shares fell $1.07, or 7.9 percent, to close at $12.45 Friday on the Nasdaq Stock Market. Its shares have traded in a 52-week range of $10.93 to $14.87.

After the market closed Thursday, the Redwood Shores-based company said it earned $519 million, or 10 cents per share, for the three months ended in August versus a profit of $509 million, or 10 cents per share, a year ago.

Revenue for the period totaled $2.77 billion, a 25 percent increase from $2.22 billion a year earlier.

If not for expenses stemming from its $11.1 billion takeover of PeopleSoft Inc. and the settlement of a shareholder lawsuit, Oracle would have earned 14 cents per share. That figure matched the mean estimate among analysts surveyed by Thomson Financial.

Oracle said it still expects a profit boost in the coming months from its PeopleSoft acquisition and pending deal to devour another longtime nemesis, Siebel Systems Inc.

The company has promised investors that it will boost its profit by about $400 million during the fiscal year ending next May, propelled by an influx of sales from the PeopleSoft acquisition. The earnings target excludes merger expenses.

Earlier this month, Oracle struck another blockbuster deal, a $5.85 billion agreement to buy San Mateo-based Siebel Systems. After completing that acquisition early next year, Oracle is counting on Siebel to increase its profit by an additional $100 million to $150 million annually.

With the acquisitions, Oracle hopes to mount a more formidable threat to SAP AG's market leadership in business applications software - the computer coding that automates a wide range of administrative tasks.

Some industry analysts have questioned whether Oracle is biting off more than it can chew at once, but CEO Larry Ellison has scoffed at that idea. He maintains most of the hard work in the PeopleSoft deal is already done.

Measuring the progress of the PeopleSoft acquisition is difficult because the takeover is less than a year old, precluding apples-to-apples quarterly comparisons.

In a key gauge of a software maker's health, Oracle's sales of business application licenses totaled $127 million, an 84 percent increase from the same time last year.

"We are very happy with that and customers seem to be very interested with what we are doing there," Greg Maffei, Oracle's chief financial officer, said during a Thursday interview.

But the growth in Oracle's database software business - still the company's foundation - disappointed analysts, with new product licenses generating $502 million, less than 2 percent above last year's $494 million.

Maffei attributed the slowing database growth to an unusually strong performance last year when sales of new licenses surged by 19 percent. He also said several large deals stalled in the most recent quarter - a summer period when customer demand traditionally weakens.

Oracle makes more money from customer upgrades of existing software, an area that grew more rapidly than new licenses. In the business applications segment, software updates and product supported generated revenue of $580 million, more than doubling from $238 million last year. Database software updates and product support contributed another $1.06 billion in revenue, up 13 percent from last year.

Source: Associated Press/AP Online

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