Oracle Profit Little Changed; Sales Miss Estimates (Update1)
Oracle Profit Little Changed; Sales Miss Estimates (Update1)
Dec. 18 (Bloomberg) — Oracle Corp., the world’s second- largest software maker, posted little change in second-quarter profit after annual support contracts helped make up for slumping orders of new programs.
Net income was $1.3 billion, or 25 cents a share, the same as a year earlier, Redwood City, California-based Oracle said today in statement. Including deferred revenue from acquired companies, sales climbed 6 percent to $5.69 billion in the period ended Nov. 30, missing the average estimate of analysts in a Bloomberg survey.
Chief Executive Officer Larry Ellison, 64, has spent more than $34.5 billion to acquire companies and add customers, giving Oracle a reliable source of revenue from support contracts. Most clients automatically renew those agreements, contributing to profit even when new product sales slow. For every dollar Oracle got last year from product sales, it reaped $1.37 from maintenance deals.
“The overall market is in a lot of pain right now,” Brent Thill, an analyst at Citigroup Inc. in San Francisco, said in an interview before Oracle reported its results. He advises investors to buy the shares and doesn’t own them. “Oracle can deliver earnings better than most software companies because of their maintenance revenue.”
Profit Estimates
Excluding costs from acquisitions and stock-based compensation, profit was 34 cents a share, meeting the average estimate of analysts. They had projected sales of $5.82 billion.
Oracle was little changed in late trading after closing at $16.61 on the Nasdaq Stock Market. The stock has lost 26 percent this year.
Worldwide spending on information-technology products will shrink 4 percent next year as the economy contracts, according to a report this month from Goldman Sachs Group Inc. Sales in the U.S., Western Europe and Japan, which account for 65 percent of total spending, will slide by 8 percent, Goldman Sachs said.
Global semiconductor sales, another barometer of technology demand, will drop 16 percent in 2009, Gartner Inc. said this week. That would mark the first back-to-back annual revenue declines in the industry’s history, the research firm said.
The strengthening U.S. dollar also has eaten into Oracle’s sales and profit. The dollar gained 15 percent against the euro in Oracle’s second fiscal quarter as the worsening economy spread to Europe. Oracle gets more than half its revenue outside the U.S.
“A slowdown in sales was exacerbated by a strengthening dollar, negatively impacting growth,” Peter Goldmacher, an analyst at Cowen & Co., said in an interview from San Francisco. He expects the shares to outperform their peers.
Spending Spree
Oracle has bought 48 companies since January 2005 to expand beyond its hallmark database software. Oracle now sells a range of business-management applications, competing with Walldorf, Germany-based SAP AG, the largest maker of such programs. Oracle also offers so-called middleware software, which helps programs of all kinds share data.
“The people who invest in Oracle are there because Oracle’s maintenance revenue protects earnings,” said Heather Bellini, an analyst at UBS AG in New York. She recommends buying the shares, which she doesn’t own personally. “Their maintenance stream is almost double what it was before the dot-com bubble, and that affords them more margin protection.”
Oracle ranks second to Redmond, Washington-based Microsoft Corp. in software sales.
To contact the reporter on this story: Rochelle Garner in San Francisco at rgarner4@bloomberg.net
Last Updated: December 18, 2008 16:26 EST
http://www.bloomberg.com/apps/news?pid=20601087&sid=aNoR1b5Drwns&refer=home