Oracle Income Up, License Sales Down

Oracle Corp. Friday announced that net income for its first fiscal quarter of 2004 rose 28 percent, despite a 7 percent drop in software licensing revenue. Net income for the quarter was $440 million, or 8 cents per share, compared to $342.7 million, or 6 cents per share, for the same quarter a year ago, meeting analysts' consensus of 8 cents. Revenue for the quarter was $2.1 billion, up two percent from $2.03 billion from the first quarter last year. Operating margin was 30 percent versus 29 percent last year. Oracle generated over $1.25 billion in cash for its first quarter. But not everything was positive. New software license sales were down seven percent to $525 million. Still, software license updates and product support were up 14 percent to $1 billion. Oracle chief financial officer Jeff Henley told analysts Friday on a conference call that historically the first quarter is the weakest for Oracle. He predicted continued improvement in total revenue of 2 percent to 5 percent and new license growth in the second quarter to be led by North America. First Call projects that Oracle's revenue for the second quarter will reach $2.4 billion, or 11 cents per share. He also promised better sales results for the remainder of fiscal 2004. A big step towards that, according to Henley, is that the company has already split Oracle's software sales force into two separate entities to help improve its performance. Some industry watchers claim that Oracle's downturn in software licensing revenues indicates that anticipated overall IT spending recovery is not at hand, while others are holding steady with previous ratings on the company. Analyst Mark Murphy of First Albany maintains his "neutral" rating on Oracle. In a research note, the analyst says that while Oracle revenue for its first quarter of fiscal 2004 fell short, the company is likely to benefit from its impressive products pipeline and a potential upturn in the spending scenario in the next quarter. However, First Albany expressed concern regarding Oracle's declining market share in its database business segment. Patrick Walravens, managing director and senior research analyst covering application software at JMP Securities, says he sees indications that things are on the upswing for Oracle. For example: After going three years without a salary, CEO Larry Ellison will begin receiving a $900,000 annual salary on September 1. Walravens says that since it is unlikely that Ellison is running short of cash, "we view the reinstatement of his salary as a signal that the business is returning to more normal activity levels." Oracle is pinning much of its future hopes on its next generation database--Oracle 10g. But the database market is under increasing pressure, and currently accounts for nearly 80 percent of Oracle's business, which means Oracle needs to expand on other revenue sources. Ellison told attendees at last week's OracleWorld event that he remains committed to closing the deal to acquire rival PeopleSoft. However, he declined to discuss whether plans to possibly increase the current offer of $19.50 per share pending in the takeover bid.