Oracle Reports 11% Rise in Profit

Oracle Corp. said Thursday that fiscal third-quarter earnings rose 11% on strong sales of the company’s core database programs, while revenue from additional applications for payroll and other back-office business functions remained basically flat.

Profit increased to $635 million, or 12 cents a share, from $571 million, or 11 cents, in last year’s third quarter, and revenue in the three months ended Feb. 29 improved to $2.51 billion from $2.31 billion.

The stall in sales of applications programs underscores the motivation in Oracle’s $9.4-billion hostile bid for PeopleSoft Inc., a chief competitor in the $40-billion market for software that manages such functions as payroll and customer service. The Justice Department has filed suit to block the takeover bid on antitrust grounds.

“It is a brutally competitive industry, and there is tremendous price pressure,” Oracle Chief Executive Larry Ellison said during a conference call.

He nevertheless said Oracle was gaining market share by taking business from both PeopleSoft and market leader SAP of Germany. Analysts said the comment was tough to evaluate because the companies report on different schedules.

Ellison also predicted more forcefully than in previous conference calls that Oracle would be buying other companies, whether or not the PeopleSoft bid prevails.

“There are a number of other acquisitions we’re looking at,” Ellison said. “I expect we’re going to be doing a lot more.”

Investors have been lukewarm on the PeopleSoft effort. Among the reasons is that PeopleSoft is still digesting a big acquisition itself.

But Tad Piper, an analyst with Piper Jaffray & Co., said Oracle’s profitability means it could buy smaller companies and then make them more profitable as well.

“That’s part of our optimism about Oracle,” Piper said.

In Oracle’s third quarter, sales of applications software were “essentially flat” at $140 million, Chief Financial Officer Jeff Henley said. New database deals jumped 16% to $700 million and software updates and support fees brought in $1.2 billion, up 17%.

Henley, who also serves as Oracle’s chairman, credited currency fluctuations and the stronger economy.

“We found the bottom a couple of quarters ago, and things have started to turn,” Henley said. Business is “not roaring by any means, but it’s a big change from a year ago.”

For the fiscal fourth quarter, Oracle executives projected 10% revenue growth and earnings per share of 17 cents or 18 cents.

Oracle shares dipped 16 cents to $12.25 on Nasdaq before the earnings announcement, then fell to $12.20 in after-hours trading.

“It was basically an in-line quarter,” Piper said. “Database was a little stronger than expected; applications were a little weaker.”

Oracle’s profit margin continued to improve because the company’s largest and fastest-growing type of revenue, software subscription renewals, was also the most profitable.

“That automatically and inevitably leads to margin expansion,” Ellison said.