NEW YORK (CNN/Money) -
Oracle Corp., one of the world's largest software companies, Thursday reported higher sales and profits for the latest quarter -- boosted by strength in its database software business and the weaker dollar.
The fiscal third quarter results overall were in line with forecasts on Wall Street.
Oracle's stock initially headed higher in after-hours trading on the news but shares gave up all their gains after Oracle gave uninspiring earnings guidance for its fiscal fourth quarter during a conference call with analysts. Oracle said earnings would be in line or slightly lower than expected.
The Redwood Shores, Calif.-based company reported net income of $635 million, or 12 cents a share, in its fiscal third quarter ended Feb. 29, compared to earnings of $571 million, or 11 cents a share, a year ago. Wall Street was expecting earnings of 12 cents a share.
Oracle posted sales of $2.51 billion, a 9 percent increase from the same period last year. That also matched Wall Street's consensus estimate.
Sales of new software rose 12 percent to $847 million, slightly higher than what many analysts were expecting. Revenue from software license updates and support increased 17 percent to $1.18 billion while sales from services fell 11 percent to $486 million.
Oracle (ORCL: Research, Estimates) stock fell about 1 percent in after-hours trading, according to Instinet, after slipping more than 1 percent during the regular session on Nasdaq.
Wall Street spooked by guidance
After a strong start to the year, the stock has fallen in recent weeks and is now down 7 percent in 2004.
The company's results are widely viewed as a leading indicator of the overall software sector's health. Oracle's quarter ended in February, so its report gives investors the first true glimpse of what software demand was like during the first few months of the year. Most of Oracle's rivals will not report their results until April because their quarters end in March.
But Oracle CFO and chairman Jeff Henley said that earnings for its fiscal fourth quarter, which ends in May, would be 17 cents or 18 cents a share. The current consensus estimate is for 18 cents a share. Henley added that sales should increase about 6 percent from a year ago. Analysts are expecting a sales increase of 8 percent, to $3.1 billion.
The fact that Oracle did not raise guidance could be an indication that the recovery in corporate software spending is still relatively slow in the making.
"There's nothing that tells me that the business is recovering substantially," said Ken Carey, an analyst with Susquehanna Financial Group. "This quarter was solid but not exceptional. It's still tough."
Shares of other software makers have also fallen lately on fears that a pickup in corporate spending may be a bit weaker than expected.
Database strong but no growth on the apps side
Oracle, which generates most of its sales from database software, is currently involved in a hostile takeover battle for PeopleSoft (PSFT: Research, Estimates), which sells applications software that helps automate daily business functions such as human resources and supply chain management.
PeopleSoft has rejected Oracle's advances. In addition, the Department of Justice is suing Oracle to block the deal on antitrust grounds. The case is due to go to trial in a federal court in San Francisco on June 7.
During the conference call, Oracle CEO Larry Ellison said he was looking forward to hearing more from the court. He added that Oracle would continue to look for more acquisitions as well.
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Investors have been hoping Oracle will be able to gain a stronger foothold in the applications business because it has higher growth prospects than the more mature database business. But Oracle's application software revenues in the quarter came in at $140 million, unchanged from last year.
But Oracle did report strong gains in its database business, with sales up 16 percent from a year ago, to $700 million.
Brendan Barnicle, an analyst with Pacific Crest Securities, said that this bodes well for Oracle. "This is encouraging to see," said Barnicle. "The biggest rap on Oracle has been that database has not really been growing."
Still, there may be some skepticism about how much demand for software is truly picking up since a weak dollar continued to benefit Oracle. The company generated more than half of its total sales from outside the Americas. Oracle said that after adjusting for exchange rate fluctuations, total sales actually grew just 2 percent from a year ago.
"Currency effects are going to be key since that did change a lot from a year ago," said Sanjiv Hingorani, an analyst with Oppenheimer.
Analysts quoted in this piece do not own Oracle and their firms have no investment banking relationships with the company.
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