ORCL - Sector: Technology---Industry: Software & Programming

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05:10 PM Oracle (ORCL) and SAP agree to a partial settlement in their legal dispute over theft of intellectual property. Oracle would receive $120M from SAP to cover legal costs while agreeing not to pursue punitive damages. Oracle still could pursue damages related SAP's acknowledged copyright infringement, which could reach $2B.

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Stocks rise on Oracle earnings, higher GDP...

Oracle Rises as Forecast, Results Top Estimates on Cloud Computing Demand
By Dina Bass - Mar 25, 2011 3:49 PM CT

Oracle Corp. (ORCL) rose in Nasdaq trading after forecasting fourth-quarter profit that topped analysts' predictions, a sign of growing demand for database software as well as hardware added by the Sun Microsystems Inc. purchase.

Profit excluding acquisition costs and some other expenses will be 69 cents to 73 cents this quarter, surpassing the 66- cent average estimate of analysts surveyed by Bloomberg, Oracle said on a conference call yesterday. Earnings on that basis were 54 cents a share in the period that ended Feb. 28, also exceeding analysts' projections.

Chief Executive Officer Larry Ellison is phasing out lower- margin products from Sun, acquired last year, to wring more profit from high-end hardware. A boom in demand for Oracle's databases used in cloud computing -- the delivery of software and storage over the Internet -- also contributed to a 29 percent gain in new license sales, a predictor of revenue.

"The future looks bright," said Patrick Walravens, an analyst at JMP Securities in San Francisco, who rates Oracle "market outperform." Ellison "has focused on making the Sun business smaller and much more profitable."

Sales climbed 37 percent to $8.76 billion last quarter. Net income was $2.12 billion, or 41 cents a share, compared with $1.19 billion, or 23 cents a share, a year earlier.

Oracle rose 50 cents, or 1.6 percent, to $32.64 at 4 p.m. New York time on the Nasdaq Stock Market. Oracle also raised its quarterly dividend 20 percent yesterday, to 6 cents a share.

Room for Margins
When Oracle, the largest supplier of database software, purchased Sun, analysts fretted that its margins would be squeezed by the addition of less profitable hardware. Oracle Co- President Safra Catz took pains to allay that concern on the conference call, saying gross margin in the hardware unit rose to 55 percent last quarter from 53 percent the previous quarter. It will continue to rise in coming periods, she predicted.

"It's becoming clear that we're going to be able to ultimately bring the margins very close, if not even more than they ever were when we were just a software business," Catz said. "We still think there's actually quite a bit of room."

In the quarter that ended November 2009, the last period before the close of the Sun acquisition, Oracle had gross margins of 81 percent, according to Bloomberg data.

The company expects to exceed its goal of boosting operating profit by $1.5 billion in the fiscal year after the deal closed, Catz said yesterday.

Avoiding 'Missteps'
Oracle reports sales that include deferred revenue from acquired companies and don't conform to generally accepted accounting principles. On that basis, sales in the fourth quarter will increase 9 percent to 13 percent from a year earlier, Catz said.

New software license sales rose to $2.21 billion last quarter, surpassing the $1.98 billion estimate of Jason Maynard, an analyst at Wells Fargo Securities in San Francisco, who rates Oracle "outperform."

"Software license revenue was much, much better than people expected," Maynard said.

New software license sales will climb 9 percent to 19 percent this quarter, Catz forecast.

Ellison is benefiting from the Sun deal by focusing on profitable, high-end hardware that runs Oracle software, Maynard said. Ellison missed the conference call yesterday because he was serving at jury duty, the company said.

"They've done a remarkably good job at executing and not having any major missteps," he said. "What's made them loved among investors is they don't make mistakes. A lot of other companies get easily distracted."

To contact the reporters on this story: Dina Bass in Seattle at [email protected]

To contact the editor responsible for this story: Tom Giles at [email protected]

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Stocks rise on Oracle earnings, higher GDP...

Oracle Corp., up 50 cents at $32.64
The database software maker said its fiscal third-quarter net income rose 78 percent on new software license sales.

Day's Range: 32.58 - 34.10
52wk Range: 21.24 - 34.10
Volume: 64,936,812
Avg Vol (3m): 24,500,600
Market Cap: 164.91B
P/E (ttm): 24.54
EPS (ttm): 1.33
Div & Yield: 0.20 (0.60%)

Technicals
Record Price High
Close Above the 50-day EMA
Close Above the 13-day EMA
Most Actives
Record Price Break Out

Last Price Quote is:
3.46%above 13-day EMA
2.77%above 50-day EMA
RS Rating: 55  

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Oracle Predicted To Keep Generating Profits...

By Justin Sharon Mar 25, 2011 4:50 pm
Mar 25, 2011 4:50 pm
Investors should turn an eye towards the company, which released a blockbuster earnings announcement last night.

He hardly needs the $40 a day stipend, being an America's Cup winning, yacht riding billionaire and all, but Oracle Corp. (ORCL) CEO Larry Ellison missed his company's blockbuster earnings announcement last night due to jury duty. The jury certainly isn't out on this enterprise software outfit however, investors delivering swift justice by sending shares up 1.56% to a fresh 52-week peak after its stellar third quarter. Sales surged 37% to $8.76 billion for the three months ending February 28 and net income increased 78% to $2.12 billion, or $0.54 on an earnings per share basis factoring out extraordinary items. This easily beat both year-earlier rates of $1.19 billion and $0.23 respectively and analyst EPS estimates of only $0.50. Burgeoning orders in cloud computing fueled demand for their database business and new software license sales rose to $2.21 billion last quarter. That was "much, much better than people expected" in the words of Wells Fargo analyst Jason Maynard.

Robust sales have helped silence the skeptics of Oracle's $5.6 billion acquisition of Sun Microsystems in April 2009. Going forward, and in an excellent harbinger of broader corporate IT spending, per share profit ex-items is now expected to be between $0.69 and $0.73 in Q4, again above consensus at $0.66. "The future looks bright," per JMP Securities researcher Patrick Walravens, who adds Ellison "has focused on making the Sun business smaller and much more profitable." Additionally -- although this will dismay those who believe the words "dividend" and "tech stock" should never appear in the same sentence -- Oracle also increased its quarterly payout ratio by a tidy 20%

This California company founded in 1977 clearly shows no signs of slowing down under Ellison's ebullient leadership. Granted, the picture isn't perfect. Hardware product revenue fell short of projections, and Germany's SAP AG (SAP) -- upgraded at HSBC Securities this morning -- is a formidable rival whose shares have actually outperformed Oracle over the past 12 months. But while Cisco Systems (CSCO), down again today and at a fresh 52-week low only last week, continues to trade like it's Apocalypse now, one of their fellow Four Horsemen of the Internet from yesteryear is galloping on ahead.

Great things are forecast if you check out Why Oracle Is Charging Hard in Hardware and Fatal Attraction in the Boardroom: Billboards Expose the Oracle Affair.

Red Hat Inc. (RHT), yesterday's top tech performer, is best known for a Linux operating system, the official mascot of which is a Bill busting penguin named Tux whose aim is to send Mr. Gates jumping out of Windows (MSFT). Unfortunately, it's the march of the penguins, allied to awful earnings, which sent Research In Motion Limited (RIMM) off 11.23% today. After -- not before, which would have been more help to investors of course -- fiscal fourth quarter revenue of $5.56 billion came in below $5.64 billion expected, we had a litany of analyst downgrades on the onetime high flier this morning. Deutsche Bank was among those reducing ratings; at least they are putting their money where their mouth is in giving the Blackberry maker a thumbs down. For it was recently revealed that the German firm is among the many erstwhile corporate clients dropping the device for Apple Inc's (AAPL) iPhone. This is but one of the woes afflicting the Ontario outfit founded in 1984 and today's tumble -- it was the Nasdaq's second worst performer -- has taken the stock into negative territory for 2011.

Research in Motion aims to fight back by unveiling its PlayBook tablet next month but the peanut gallery has already weighed in with complaints over price, not to mention the lack of a cellular capability. Though results were in-line for the quarter, weak gross margin guidance is weighing on shares. RIM also forecast fiscal year 2010 per share earnings of more than $7.50, which strikes many as aggressive given management's recent tendency to over promise and under deliver, especially against a backdrop of increasing capital expenditures. The firm's operating margin, with devices representing some 80% of sales, has historically been double the industry average. Amid a lack of product innovation and increased competition from the Cupertino clones, it is hard to see how this can be sustained. Deutsche Bank's Brian Modoff speaks for many in contending "With no QNX on handsets until calendar 2012, we think RIM will likely continue to lose share to Android (GOOG) smartphones whose prices are rapidly falling."

Yes, 70% of revenues are derived from fast growing markets outside the United States. And trading at an extremely low Price/Earnings multiple of only 8 times, some see value where others espy only a value trap. But addictions rarely end well, and a device once labelled "CrackBerry" is experiencing serious withdrawal symptoms. Research in Motion made an all time peak of over $146 in June 2008, the same year one of its most avid users was also flying high. Alas for both BlackBerry and Barack, it's been largely downhill ever since.

Read related research at Things Aren't Looking Good for Research in Motion.

An industry that survived not only Son of Sam but also Newman and Clifford C. Clavin may have ultimately met its match at the hands of the Internet. Indeed the postal service has just announced drastic actions after losing $8.5 billion last year. So it seems an odd time for meter leader Pitney Bowes Inc (PBI) to end up 2.23%. Yet shares stand not far from a one year high, having performed steadily if not spectacularly of late. Arguably its chief attraction is a plump dividend yield of 5.88% which, while allied to a P/E ratio of only 16.8x, is enough to entice many risk-averse investors. The 91-year old firm based in an especially wealthy city (Stamford) in America's richest state (Connecticut) is a steady Eddie for yield if not thrill seekers, having increased its payout ratio for 28 straight years.

Pitney boasts an 80% share of the domestic postage meter market and its most recent (Q4) results showed strength in equipment and software segments for the second straight quarter. That said, operating margin fell by 400 basis points to 10% amid a 1% reduction in overall revenue. In a slow growth business with direct-mail declining and online threats multiplying, you may want to stick with stamps. After all, publicly traded British-based philately firm Stanley Gibbons reported a handsome 13% increase in revenue just this morning.

Before going postal, get all your questions answered at How Long Can You Wait in Line Before Snapping? Alternatively, The Top-Performing Alternative Investments: Rare Stamps should meet with your seal of approval.

It seems similarly strange that with Japan's tragedy causing a run on similar products, Primo Water (PRMW) should tumble 2.23% in an otherwise up market. The Winston-Salem outfit was established in 2004 and its shares jumped 15% in a November 5th initial public offering, having sold 8.33 million shares at $12 each. It still trades above that level, but the provider of bottled water and dispensers sold off on some profit taking after reporting a fourth-quarter loss of $0.13 cents a share yesterday after the close. This was actually ahead of the $0.16 deficit expected among the still-small group of analysts who follow the firm. Primo sells three-and five-gallon purified offerings in the U.S. via a national network of independent bottlers and distributors. Janney Montgomery Scott is among the Buy-rated bulls on the name, having picked up coverage in mid-December. The bottled water boom, still in full swing a few years ago, has shown signs of slowing in recent years however. Environmental concerns about all that plastic piling up in landfills loom large. And cutthroat competition comes from the likes of Coca-Cola's (KO) Dasani and Aquafina from PepsiCo (PEP) -- not to mention Brita's filter and, at least in New York City, our own enduringly excellent humble tap offerings.

Bottled Water Sales Drying Up show why the glass is half empty.

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Oracle Reports Strong 4Q
Friday June 24, 2011

Oracle Corp. (NasdaqGS: ORCL) reported an impressive fourth quarter 2011, with quarterly revenues surpassing $10.0 billion for the first time in the company's history. The robust top-line growth helped Oracle earn 71 cents per share in the quarter, which beat the Zacks Consensus Estimate by two cents.

Operating Performance

Net Income was $3.68 billion (excluding one-time items but including stock-based compensation expenses) or 71 cents per share compared with $2.87 billion or 56 cents in the year-ago period. Net income margin expanded 430 basis points (bps) in the quarter.

Excluding one-time items and stock-based compensation expenses, non-GAAP earnings came in at 75 cents per share compared with 60 cents per share in the year-ago quarter. This was above management's guided range of 69 cents to 73 cents per share.

The increase in earnings was attributable to higher revenues from new software license sales, which grew for the seventh consecutive quarter and is expected to drive higher revenues from support and maintenance contracts going forward. This also reflects upside in software demand.

Total operating expenses increased 6.6% in the quarter, mainly due to increased research and development expenses (10.8% of the total revenue) that rose 10.1% to $1.17 billion and sales and marketing expenses (19.4% of the total revenue) that climbed 20.2% to $2.09 billion.

Despite higher expenses, operating income on a non-GAAP basis increased 19.5% to $4.98 billion, driven by strong revenue growth. Non-GAAP operating margin of 46.2% surged 290 bps year over year, driven by the higher margin software business.

Although hardware revenues declined in the quarter, hardware gross margin increased to 55.8% compared with 45.7% in the prior-year quarter. This essentially reflects a shift in Oracle's policy to selling Sun products at a higher profit margin rather than selling them at a loss or reselling products from other companies. We believe that operating margins will benefit from declining percentage of third party hardware reselling (non-Sun) going forward.

Revenues

Total revenues in the fourth quarter increased 12.2% year over year to $10.81 billion, driven by better-than-expected new software license revenues (up 19.2% year over year), which fully offset a decline in hardware sales (down 4.0% year over year).

Oracle is expected to benefit from its growing software business (71.4% of fourth quarter revenues), which was robust across all regions (America, EMEA and Asia) and up 16.8% year over year to $7.71 billion.

Beside higher new software sales, software license update and product support revenues (36.8% of the total revenue) grew 14.7% to $3.98 billion.

Database and middleware revenues were $5.36 billion, up 16.7% from the year-ago quarter. Applications revenues were $2.34 billion, up 18.4% from the year-ago quarter. Service revenues totaled $1.25 billion, up 12.6% year over year.

Oracle's Hardware Systems revenues of $1.84 billion represented 17.1% of the total revenue. Revenues from hardware systems products were $1.16 billion, down 6.2% year over year, while revenues from hardware systems support amounted to $687.0 million, flat year over year.

The decline in hardware sales were primarily attributed to Oracle's policy of selling Sun products at a profit, thereby cutting down on volume. We also believe that lower IT spending in the quarter, due to the sluggish macro environment in the Europe/Middle East/Africa (EMEA) market, may have also contributed to this decline. Hardware revenue declined 13.0% in EMEA, compared to a 3.0% decline in the Americas and 4.0% decline in the Asia Pacific.

Liquidity

Strong quarterly results helped Oracle generate $10.76 billion in free cash flow, which was 126% of the net income. Operating cash flow was $11.21 billion in the quarter. Oracle had $28.85 billion in cash and marketable securities at the end of the quarter versus $24.36 billion in the previous quarter. In the reported quarter, Oracle repurchased 12.5 million shares for a total of $422 million.

Guidance

For the first quarter of 2012, Oracle expects non-GAAP earnings in the range of 45 cents to 48 cents per share. First quarter 2012 earnings guidance is significantly higher than the 39 cents reported in the comparable quarter last year as well as the Zacks Consensus Estimate of 44 cents.

Total revenue growth on a non-GAAP basis is expected to range from 9.0% to 12.0%. New software license revenue growth is expected in the 10.0% to 20.0% range. Hardware product revenue growth is expected to range from (5.0%) to 5.0% for the first quarter.

Recommendation

We believe that Oracle will continue to report strong results based on its innovative product pipeline, improving margins, high recurring revenues, strong growth from Exadata and Exalogic and increasing adoption of cloud computing over the long term.

Moreover, Oracle is expected to pick up significant market share from SAP AG (NYSE: SAP - News) in the Applications market going forward. Oracle is also expected to edge out its prime competitor IBM Corp. (IBM) in the database market.

According to research firm Gartner, Worldwide IT spending is estimated to total $3.6 trillion in 2011, a 5.1% increase from 2010. Of this, computing hardware and enterprise software are each expected to witness year-over-year growth of 7.5%.

We believe Oracle will benefit from this trend, as it remains well positioned with Sun hardware and Oracle software. The fact that both the Sun hardware and Oracle software are relatively higher-margin is an added bonus. Hence, we believe that the company will hugely benefit from these products going forward.

Additionally, Sun holds the promise of even more returns if Oracle is able to win the lawsuit against Google Inc. (NasdaqGS: GOOG - News) over its Android operating system.

Currently, less than 10.0% of global IT spend is on cloud computing. According to market research firm In-Stat, businesses in the United States will spend more than $13 billion on cloud computing by 2014. Oracle, through its Exadata and Exalogic product lines, provides the infrastructure for companies to adopt cloud computing, where data is handled remotely in datacenters rather than on premises.

However, Oracle is expected to face strong competition from Hewlett Packard Co. (NYSE: HPQ), IBM, Cisco Systems Inc. (NasdaqGS: CSCO) and Red Hat Inc. (NYSE: RHT) in the cloud computing market that may hurt its profitability over the long term.

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Oracle results beat the cloud naysayers, at least for one quarter

Oracle (ORCL) investors partied a day after the database giant released its fiscal second quarter earnings showing big gains for cloud services and some high-end hardware. Shares of Larry Ellison's baby jumped 6%, surpassing not just the 52-week high from back to March but the May, 2011, post-Internet bubble high as well.

On the surface, Oracle's overall results were nothing to get so excited about, with revenue up 2% and net income declining 1%. The results just slightly exceeded what analysts expected.

So why the big move in the stock?


Oracle and a few similarly situated big tech stocks like IBM (IBM), Cisco (CSCO) and Microsoft (MSFT) are caught in a battle of investor expectations. Critics and short sellers argue that the shifts to cloud computing and mobile devices are eviscerating the lumbering giants. Backers maintain the companies are successfully, if slowly, responding.

Oracle was able to fuel the bullish case this time around, with evidence that some of its newer businesses could grow quickly enough to offset declines in increasingly outmoded software and gear lines.

On the software side, Oracle reported that bookings for its cloud services rose 35%. "We decided that we were really going to lean in to the cloud to get market share," Oracle President Safra Catz noted on a call with analysts on Wednesday. Actual revenue from cloud-related services rose 20%.

On the hardware side, where the popularity of cloud services has reduced demand for companies buying their own servers, Oracle showed some of its cutting-edge products still have appeal. Sales of the Exadata line, a specialized server for running Oracle software, rose at double-digit rates, while Sparc Superclusters, huge integrated boxes for data centers, at triple-digit rates, the company said without giving specific numbers.

Still, sales of much of the rest of the line-up are plummeting. And while total hardware sales slipped just 3% from the prior year, they're down 25% from fiscal 2012 and almost 40% from 2011.

So even for Oracle's biggest fans, it's too early to declare victory.

Oracle's share of the server market dropped to just 4.1% in the calendar third quarter, according to IDC data. And pure cloud service providers like Salesforce.com (CRM) and Workday (WDAY) continue to steal away Oracle customers. Workday, started by executives who left Peoplesoft after Oracle purchased it in 2005, reported a 76% increase in revenue in its most recent quarter. Salesforce revenue increased 36%.

If it's going to survive and thrive under the onslaught from new players, Oracle needs to turn those increased bookings into increased revenue.

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Oracle's Growth Will Return The Stock To $45 Per Share

Summary
• The bullish case for Oracle is simple, as businesses strive for growth, the growth process will always place more demand on IT services.
• From an operational perspective, Oracle's results weren't as bad as the Street made them out to be.
• Oracle remains incredibly profitable. And the guidance for the final quarter is encouraging.

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Oracle's Growth Will Return

Database giant Oracle (ORCL) disappointed investors on Tuesday with earnings and revenue that missed Street expectations. The stock was down more than 5% Tuesday after the close. And frustrated investors continue to wonder what else can go wrong with the enterprise software company.

Fiscal Third-Quarter Results

Oracle reported third quarter revenues of $9.3 billion, up 4% on the year before. But this wasn't enough to please investors. Analysts were looking for revenue of $9.36 billion. Oracle showed moderate strength in new software licenses and cloud software subscriptions. That business posted revenues of $2.4 billion, which was up 4% year over year. But that, too, was considered unimpressive.

Analysts like Daniel Ives of FBR Capital Markets wasn't impressed. Ives was looking for 7% growth in the cloud subscription business. He argued that the enterprise IT spending was strong enough to support this projection. Ives has been a notable critic of Oracle and believes that the company is being left behind by nimbler rivals like Salesforce.com (CRM) and Workday (WDAY).

But Ives overlooked some positives in Oracle's report. For instance, revenue from hardware systems products rose 8% to $725 million. This has been the first growth Oracle has experienced in that business in four years. This hardware growth accounts for 30% growth (on a constant currency basis) in the engineered server systems business. CEO Larry Ellison made certain that highlight this fact. He said:

"
"Our Engineered Systems business is growing rapidly for the same fundamental reason that our Cloud Applications business is growing rapidly. In both cases, customers want us to integrate the hardware and software and make it work together, so they don't have to."

Likewise, it's worth noting that Ellison has been extremely vocal about his intentions with Oracle. While the company has not demonstrated the growth that investors would like, management has been clear in its execution. Oracle is transitioning the business to stronger growth areas. What's more, Oracle's cloud software sales were actually up 25% year over year.

From an operational perspective, Oracle's results weren't as bad as the Street made them out to be. It's true that the company missed Wall Street's expectations for adjusted earnings per share. But GAAP earnings per share were up 8% to 56 cents. Likewise, non-GAAP earnings per share were up 5% to 68 cents per share.

Equally impressive is that fact that amid all of this anxiety about Oracle's future, it's encouraging that operating cash flow on a trailing twelve-month basis was up 10% to $15 billion. Again, where Oracle is perceived deficient in terms of revenue, the company has to forgotten how to make money. And when you consider that the revenue miss was by less than half a percentage point, there's clearly been an overreaction.

Looking ahead

For the current quarter, the company expects EPS (excluding items) to be in the range of 92 cents to 99 cents per share. Meanwhile, fourth-quarter revenue is projected to post year-over-year improvement of 3% to 7%. Analysts had modeled earnings of 95 cents and revenue of $11.5 billion, which suggests 5% growth.

Summary

The bullish case for Oracle is simple, as businesses strive for growth, the growth process will always place more demand on IT services. And as IT services get more complicated, it will require increased levels of expertise manage the enterprise. There is no other company more capable of delivering these services than Oracle.

All told, Oracle remains incredibly profitable. And the guidance for the final quarter is encouraging. As it stands, the stock looks incredibly cheap at 12-times forward earnings. On the basis improved cash flow and cloud-based software growth.