Oracle shines in spending slowdown shadow
At least one IT shop sees no financial sector impact, so far
NEW YORK (Fortune) -- With no disaster to report, Oracle gave the tech sector a big boost Friday helping an already buoyant Wall Street notch a 3% Nasdaq gain.
The Redwood Shores, Calif. software giant, second in size only to Microsoft (MSFT, Fortune 500), posted a slightly better-than-expected adjusted profit on $5.4 billion in sales, an 18% increase over the same period last year. Oracle's (ORCL, Fortune 500) high-margin software maintenance contracts provided the solid backing for the quarter and helped give company executives some confidence in their business outlook.
The news comes at the end of a tumultuous week for the financial sector and at a time when tech suppliers seemed to be watching orders dry up in the spiraling credit crisis and expanding global economic slowdown.
To that specific point, Oracle said its worldwide scale and broad assortment of products is a shield from the sharp jolts experienced in the financial services market. "Our exposure to banking customers globally is in the low-single-digits," Oracle's CFO Safra Catz told analysts on an earnings conference call Thursday.
"The U.S. banking and mortgage situation has been playing out for months and we do not believe that it should have a material impact on our performance for the quarter," Catz said on the call, according to a transcript posted on SeekingAlpha.com.
That assurance was good enough for jittery tech investors in a week when No.2 PC maker Dell (DELL, Fortune 500) said, for the second time in three weeks, that it had seen the spread of sluggish sales beyond the U.S. and Europe. And on Wednesday, Toronto communications gearmaker Nortel (NT) waved the white flag, saying its business had dropped off steeply.
By comparison, Oracle's predictable recurring revenue from its maintenance contracts seems like a touchdown against a field of fumblers. But beyond the company's database dominance, some analysts found pockets of weakness.
The company's revenue from applications licenses fell to $334 million or 12% from year-ago levels, a disappointment to analysts who were looking for $416 million in the August quarter.
And to make a weak number look even worse, Sanford Bernstein analyst Charles Di Bona points out that there was a little filler and a few additives included in the applications' number.
"We believe that at least some portion of applications revenues in the quarter was the result of acquisitions and currency boosts," as opposed to the so-called organic growth that comes from Oracle's original business.
The confusion of contributing factors isn't exactly surprising given that Oracle has made 47 acquisitions since 2002 and seven of those in the past year. Even with those competitors now rolled into the fold, Oracle is seeing some declines in a key unit.
Oracle says the August quarter application revenue numbers look weak because they are compared to a very big performance a year ago. But looking ahead, CFO Catz said there shouldn't be any reason that a strong trend will end.
"We expect the applications business to grow for the year" said Catz on the call "because it's a growing business and it's been growing."
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