Oracle earnings up 30% but sales disappoint

Oracle CEO Larry Ellison has been aggressively buying smaller, best-of-breed companies to compete with Microsoft, IBM and SAP.

NEW YORK (CNNMoney.com) -- Software giant Oracle announced fiscal third-quarter earnings rose 30% from a year ago, in line with Wall Street expectations. But sales missed forecasts, a possible sign that big businesses may be starting to pull back on tech spending.

Shares of Oracle plunged more than 8% in after-hours trading. The company said in a conference call Wednesday that it expected a strong fourth quarter.

Net income for the three months ending in February rose 30% to $1.3 billion, or 26 cents per share.

Excluding certain one time items, the company reported a profit of 30 cents per share, meeting analysts' forecasts, according to estimates from Thomson Financial.

Sales rose 21% from a year ago to $5.35 billion, below consensus expectations of $5.42 billion.

Oracle (ORCL, Fortune 500) has been aggressively scooping up smaller software companies in order to compete with rivals Microsoft (MSFT, Fortune 500), IBM (IBM, Fortune 500) and SAP AG. (SAP) The company is in the process of purchasing BEA Systems (BEAS), an acquisition which is expected to close in the coming quarter and should give Oracle a dominant position in the middleware software segment.

In the company's conference call with analysts Wednesday, Safra Catz, Oracle's president and chief financial officer said she expects non-GAAP fourth-quarter revenue to rise between 14% and 18%. She also expects earnings between 43 and 44 cents per share and new software licenses to rise between 10% and 20%.

Oracle president Charles Philips said in a written statement that new software license revenues continue to grow rapidly, taking market share from companies like IBM. And CEO Larry Ellison boasted in the statement that Oracle has higher operating profit margins than its competitors, including Microsoft.

Despite that good news, new license sales were only up 16%, not as high as some analysts would have liked. This could be an indication that the economic slump is taking its toll on Oracle.

Some of the deals that started in the third quarter have already closed, according to Catz, but she said Oracle customers acted a bit more cautious than usual, due to the current economic slowdown. "Deals are getting done, but they are taking a little bit longer."

In a weakening economy, business managers may wait to install new software, says Damon Ficklin, an analyst for Polen Capital Management, a money management firm that owns shares of Oracle. Oracle is the firm's third largest holding.

Ficklin points out that Oracle is not immune to a pullback in corporate spending but he does think Oracle will probably do better than other technology companies in the coming months because the software giant is so diversified.

In addition, Ficklin says Oracle is a global company that will profit from the weak dollar. Oracle has a large presence in the Middle East, Europe and Asia and international sales account for half of the company's total revenue.