Oracle Corp. fared far better than analysts anticipated in its fiscal second quarter, easing worries that the sagging U.S. economy will curtail corporate spending on technology and drag down the business software maker.
Relieved investors drove up Oracle's stock price by more than 6 percent late Wednesday after the results were released.
The Redwood Shores-based company it earned $1.3 billion, or 25 cents per share, for the three months ended Nov. 30, a 35 percent increase from net income of $967 million, or 18 cents per share, at the same time last year.
If not for stock option expenses and the costs incurred in recent acquisitions, Oracle said it would have earned 31 cents per share — four cents per share above the average estimate among analysts surveyed by Thomson Financial.
Revenue totaled $5.31 billion, a 28 percent improvement from $4.16 billion last year. Analysts, on average, had projected revenue of $5.04 billion.
Even more important to Wall Street, Oracle's sales of software licenses climbed by 38 percent to $1.67 billion. Analysts had predicted gains in the 20 percent range.
Software sales are closely watched because new licenses establish a pipeline for future revenue from product upgrades and maintenance.
"The strength of the quarter comes down to the fact that we are selling more products to more customers in more industries," Safra Catz, Oracle's chief financial officer, said during a conference call with analysts.
Signaling that its recent momentum will carry into 2008, Oracle forecast software sales will rise 15 percent to 25 percent in the current quarter, which ends in February. Oracle made the same projection for the second quarter and then soared well beyond it.
Excluding stock option expenses, Oracle expects to earn 29 cents or 30 cents per share in the fiscal third quarter. The average analyst estimate for the quarter was 29 cents per share.
Oracle shares fell 49 cents to finish Wednesday's regular trading at $20.76, then rebounded by $1.37, or 6.6 percent in extended trading after its quarterly results were released.
"It was a very strong quarter, based on just about every metric you can think of," said Global Equities Research analyst Trip Chowdhry.
Oracle has been on a roll through most of the past two years, reaping the benefits of a shopping spree that has turned it into a one-stop shop for database software and applications that automate a wide variety of business operations.
By spending more than $25 billion snapping up its smaller rivals since 2004, Oracle has created the software industry's equivalent of a Costco warehouse, said Cowen and Company analyst Peter Goldmacher.
"Oracle looks to be better positioned than just about all its competitors," Goldmacher said. That list of rivals includes other technology heavyweights like IBM Corp., SAP AG and Microsoft Corp.
Larry Ellison, Oracle's hard-charging chief executive officer, remains on the prowl for other takeovers. In October, he offered $6.7 billion for another Silicon Valley software maker, BEA Systems Inc., only to be rebuffed. Echoing recent public comments, Oracle reiterated it's unlikely to buy BEA unless there's a change in the makeup of the San Jose-based company's board of directors.
Oracle's second-quarter showing and upbeat outlook may revive hopes that the technology sector will be able to overcome the threat of a looming recession and grow solidly next year.
With informal surveys indicating that a substantial number of companies plan to spend less on technology next year, some analysts are bracing for a downturn and their only question is the depth of the drop.
But there's a theory that Oracle and a few other industry leaders won't be hurt if the economic uncertainty causes businesses to concentrate their tech spending on products made by well-established vendors.
"Customers are going with proven technologies with proven value," Chowdhry said. "That bodes well for Oracle and Microsoft. It doesn't necessarily bode well for the rest of the software industry."