RBC upgrades Oracle to outperform

A sign is shown at the headquarters of Oracle Corporation in Redwood City, California February 2, 2010. Picture taken February 2, 2010.

(Reuters) - RBC Capital Markets upgraded Oracle Corp to "outperform" from "sector perform" as hardware growth opportunity returns.

The smaller engineered systems business, which accounts for about 15 percent to 20 percent of the software maker's hardware revenue, has been growing rapidly as evidenced by $274 million in bookings in the fourth quarter, analyst Robert Breza said in a note.

"As engineered systems becomes a more meaningful percentage of the hardware mix it should begin to drive both growth and profits for the segment," Breza said.

Oracle's ailing hardware business, inherited through its acquisition of Sun Microsystems, remained a drag, with hardware product sales diving 16 percent to $977 million in the fourth quarter.

The company's recent acquisitions of RightNow Technologies Inc and Taleo Corp could also add modestly to its new software license revenue, the analyst said.

The world's No. 3 software maker had said its new software sales growth in the current quarter should be flat to 10 percent higher, despite fears of further weakening in technology spending as the euro zone crisis deepens and U.S. job creation stagnates.

Breza raised his price target on the stock to $36 from $33.

Shares of the Redwood City, California-based company were up 4 percent at $29.33 in midday trading on the Nasdaq.

(Reporting By Aurindom Mukherjee; Editing by Maju Samuel)