Oracle's 3rd-Quarter Results Exceed Expectations

Oracle reported third-quarter results Tuesday that exceeded both the software vendors and analysts predictions.

In third-quarter results for the period that ended Feb. 28, 2007, Oracle saw net income grow 35 percent over the previous years quarter to US$1.03 billion, while revenue grew 27 percent to $4.41 billion. Earnings per share (EPS) rose 36 percent to $0.20.

Discounting the impact of recent acquisitions and other factors, Oracles pro forma net income grew 30 percent to $1.3 billion compared with the third quarter of fiscal 2006, while pro forma revenue increased 26 percent to $4.45 billion, and pro forma EPS was up 31 percent to $0.25.

A consensus estimate of Thomson Financial analysts had predicted that Oracle would report pro forma revenue of $4.3 billion and pro forma EPS of $0.23.

"Both revenue and earnings growth accelerated sharply in the third quarter," said Safra Catz, Oracle co-president and chief financial officer, in a press release. "We exceeded guidance on every metric with strong revenue growth across all product lines and in all geographies."

Overall software revenue grew 25 percent to $3.5 billion, with new license revenue from Oracles database and middleware growing 17 percent, while new license revenue from the vendors applications rose 57 percent. Total revenue from services was $916 million, an increase of 36 percent compared to the previous years quarter.

Oracle Chief Executive Officer Larry Ellison claimed that his companys middleware business exceeds that of pure-play middleware player BEA Systems. "Not only are we growing faster than BEA, were now larger than they are in the middleware business," he said in the release. Oracle is also hard at work trying to become the number-one business applications vendor as it competes with its bitter rival and the market leader, SAP.

As Oracle continues aggressively acquiring new companies, what remains unclear is the growth in sales of application software licenses excluding recent purchases. In other words, how well are the vendors core applications selling? Although Oracle posted strong overall results back in December for its second quarter of fiscal 2007, analysts noted signs of weakness in the companys growth in relation to software license revenue. Oracle said it missed its target for software revenue growth in the second quarter, blaming deals that didnt close in time for the end of that financial period.

Analysts are also keen to find out how well Oracles plan to offer full support for Red Hats Enterprise Linux is progressing. Oracle announced the move in October, but has yet to talk publicly about how many customers have opted for the offering.

At the start of this month, Oracle announced plans for another major acquisition, agreeing to buy business intelligence software vendor Hyperion Solutions for US$3.3 billion in cash. Subject to regulatory conditions, the deal is set to close next month.

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Copyright © 2007 IDG Communications, Inc.

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