Oracle profit rises on improved margins

Nicole Volpe

NEW YORK: Oracle Corp., the world's biggest database software maker, on

Thursday posted first quarter profit that beat Wall Street estimates on improved

margins as the company continues to cut its costs.

The Redwood Shores, Calif.-based company also announced a two-for-one stock

split, which will entitle each stockholder of record on Sept. 25 to receive an

additional share for every share owned.

First quarter net income rose 111 per cent to $501 million, or 17 cents per

share, compared with a net income of $237 million, or 8 cents per share a year

earlier. Sales rose to $2.3 billion from $2.0 billion, meeting analyst

expectations for revenue.

Analysts on average had expected Oracle to earn 13 cents a share, according

to First Call/Thomson Financial, which tracks such Wall Street estimates.

"They were good strong numbers, in the range of what was expected,"

said Hoak Breedlove Wesneski & Co analyst Gregg Speicher. "But yet

there may have been a wide range of expectations, with some expecting even

stronger numbers out there. It's hard to tell what the stock will do in the near

term."

The company reported after the close of trade, and the stock fluctuated after

hours. Shares closed up $3-1/8 at $84-15/16, and shot up in after hours trade to

$87 following the report to reach within striking distance of a year-high of

92-15/16. Shares then fell below the closing price to about $82-3/4, according

to the Island electronic trading system.

Executives said in a conference call that sales of applications software,

which includes its new 11i e-business suite, were not as strong as they would

have liked.

Sales of application software increased 42 per cent to $156 million. Analysts

had a wide range of expectations for application software sales due to the wild

card of a new product offering. One analyst put the consensus for sales growth

near 60 per cent.

Executives said they expect sales of the software suite, which allows for

business functions such as payroll, human resources and accounting to be carried

out on the Web, to get stronger in the second quarter.

"We came out with 11i (the Oracle 11i e-business suite) at the end of

the fourth quarter," said Larry Ellison chairman and chief executive in the

conference call, adding that the new suite of software did not come in as high

as expected. "Selling the suite is a large complex sale."

He forecast that sales of the new software would "be spectacular"

in the second quarter.

The company has beaten Wall Street profit expectations for the past three

quarters, and chief financial officer Jeff Henley told Reuters he expected to

meet or beat second quarter estimates as well. Consensus analyst estimates for

the second quarter are for share earnings of 19 cents, compared with prior-year

actual share earnings of 13 cents.

"There is no reason that with good margin improvement and license growth

that we couldn't do that (meet estimates) or hopefully better," he said in

a telephone interview. However, he cautioned analysts on a conference call,

saying "that doesn't mean everyone should hike their models."

He said he expected continued operating margin improvements to come from an

ongoing efficiency plan, in which the company is moving it's own operations onto

the Internet with the goal of cutting expenses by $1 billion per year.

First quarter operating margins were improved over the year earlier by 11.7

percentage points, to 29.1 per cent from 17.4 per cent.

Database software sales rose by 32 per cent to $585 million, beating analyst

expectations of 25 per cent growth.

Total software license revenue was up 28 per cent to $807 million. License

growth, or sales of new software, is watched closely by analysts and investors

to gauge future profit growth.

Analysts said they were watching the quarter closely for any signs of trouble

resulting from the abrupt departure of chief operating officer Ray Lane,

announced in late June. Ellison assumed his duties.

It also came to light during the quarter that Oracle had hired a private

detective agency to investigate allies of Microsoft Corp., the world's biggest

software firm.

(C) Reuters Limited 2000.