(Adds details from call, analyst's comment)
By Noel Randewich
SAN FRANCISCO, March 18 Oracle Corp
posted higher third-quarter revenue and profit that failed to
satisfy investors looking for signs of a sustained turnaround
and its shares fell about 4 percent.
Shareholders had grown more optimistic after Oracle's
previous quarterly results, but still worried about slow IT
spending and growing competition from smaller, nimble rivals.
On Tuesday, the company also forecast current-quarter
results roughly in line with investors' targets.
Chief Financial Officer Safra Catz forecast fourth-quarter
revenue growth of between 3 percent and 7 percent in constant
dollars, equivalent to between $11.3 billion and $11.7 billion.
Wall Street had expected $11.5 billion.
She told analysts on a conference call that she expected
current quarter earnings of 92 cents to 99 cents per share,
versus analysts' consensus estimate of about 96 cents. New
software and sales and subscriptions should grow between zero
and 10 percent, she said.
"They still have heavy lifting ahead in order to declare
this a turnaround story," said Dan Ives, an analyst with FBR.
"Investors need to see more. It continues to be a 'prove me'
stock in the eyes of investors."
The company said new software sales and Internet-based
software subscriptions in its fiscal third quarter ended Feb. 28
rose 4 percent from the year-ago period.
The company had forecast that new software sales and
subscriptions would be up between 2 percent and 12 percent in
the current quarter. New software sales are scrutinized by
investors because they generate high-margin, long-term
maintenance contracts and are an important indicator of future
SOFTWARE BUSINESS STILL WEAK
Revenue from Oracle's hardware systems products grew 8
percent to $725 million, the first increase since the software
company's $5.6 billion purchase of Sun Microsystems in 2010.
The hardware business recovery is a good sign but much less
important than the company's core software business, said Ives.
Smaller, aggressive companies like Salesforce.com Inc
and Workday Inc have been offering competitive
software and Internet-based products at prices that often
In response, four-decade-old Oracle has been rolling out its
own cloud-based products and acquiring smaller cloud companies
like marketing software maker Responsys Inc.
"They moved in this direction significantly later than
Microsoft for example," said Bernstein analyst Mark
Moerdler. "They're playing catch up, but they're working quickly
and they're starting to make some progress."
On Tuesday's call, Catz said revenue from cloud software
subscriptions was up by about 24 percent in the quarter to $292
million, equivalent to about 3 percent of Oracle's total
On the conference call, President Mark Hurd said Oracle is
getting better at selling cloud services, thanks partly to a
reorganization of the company's salesforce last year.
"We thought we knew a lot a year ago or a couple years ago.
We just know a lot more now," Hurd said. "We obviously have more
feet on the street than we had and ... they've been in place
Cloud computing, which refers to the delivery of services
via the Internet from remote data centers, is becoming popular
with corporate buyers because it is faster to implement and has
lower upfront costs than traditional software.
Most of Oracle's business relies on selling database
software and hardware that customers install in their own data
centers. Customers pay extra maintenance contracts that are
highly profitable to Oracle and provide a steady stream of cash.
Global IT spending is likely to increase just 3 percent this
year, while spending on cloud services is expected to grow 18
percent, according to market research firm Gartner.
For the third quarter, Oracle said overall revenue rose 4
percent to $9.31 billion. That was a little below the $9.36
billion analysts had expected on average.
Net income was $2.56 billion, up 2 percent. Earnings per
share, which reflected a decrease in the number of shares
outstanding, rose 8 percent to 56 cents. On an adjusted basis,
Oracle earned 68 cents per share.
Shares of Oracle fell 4 percent to $37.32 in extended trade,
after closing at $38.84 on the New York Stock Exchange.
(Reporting by Noel Randewich; Editing by Leslie Adler, Cynthia
Osterman and Richard Chang)