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Oracle Results Fail to Meet Expectations

Revenue from new software licenses and online or “cloud” subscriptions fell 2 percent year-over-year to $2.3 billion. The company predicted that number would rise by a range of 3 percent to 13 percent. Hardware systems revenue dropped 16 percent. While the hardware revenue decline has been continuing and expected, the decline in new software licenses and subscriptions was a surprise.

As one of the world’s largest makers of business software, Oracle helps Wall Street gauge the direction of corporate technology budgets. When Oracle’s earnings are lackluster, it is often a sign that companies are concerned about the economy.

But Oracle, which is based in Redwood City, Calif., also depends on international markets for a major portion of its revenue. Europe’s economy is still limping because of worries about government debt, and China’s economic growth has been slowing.

Oracle earned $2.5 billion, or 52 cents a share, in the quarter. That compares with $2.5 billion, or 49 cents a share, in the comparable period a year earlier, when it had more shares outstanding.

Revenue in the period, which ended Feb. 28 and was the third quarter of Oracle’s fiscal year, fell 1 percent to $8.96 billion from $9.04 billion, hurt in part by the stronger dollar.

Analysts polled by FactSet had expected earnings of 66 cents a share, excluding charges for past acquisitions and other costs, on revenue of $9.38 billion.

Shares of the company fell $2.73, or 7.7 percent, to $33 in after-hours trading after the announcement.

Oracle Software Sales and Profit Beat Forecasts

Shares of the world's No. 3 software maker rose 2.6 percent after it reported fiscal second-quarter revenue and earnings that surpassed Wall Street forecasts.

Oracle President Safra Catz told investors that businesses were still looking to spend money already allocated to 2012 technology budgets.

"Folks want to close deals," she told analysts on a conference call following the earnings release on Tuesday. There has been "no negative impact on pricing. Pricing remains very good for us."

Oracle said software sales would grow 3 to 13 percent this quarter, which runs through February. It expects fiscal third-quarter hardware products sales to be flat to down 10 percent from a year ago.

The company's software and hardware forecasts were roughly in line with Wall Street expectations, according to FBR Markets analyst Daniel Ives.

Oracle reported that software sales and cloud software subscriptions rose 17 percent from a year earlier to $2.4 billion in its fiscal second quarter ended November 30.

Oracle had forecast that new software sales would climb 5 to 15 percent from a year earlier when it last reported earnings on September 20.

"I would call it an early Christmas present," Ives said. "It's a positive sign for the overall technology sector."

Investors pay close attention to new software sales because they generate high-margin, long-term maintenance contracts and are an important gauge of the company's future profits.

Oracle posted a second-quarter profit, excluding items, of 64 cents per share, beating the average analyst forecast of 61 cents according to Thomson Reuters I/B/E/S.

Jefferies & Co analyst Ross MacMillan said Oracle's results are encouraging for other makers of business software, many of which end their quarter on December 31.

OFF A CLIFF

Some investors have worried that corporations would postpone spending on technology projects because of uncertainty over the year-end deadline for Congress and U.S. President Barack Obama to reach a compromise to thwart an automatic rise in tax rates and government spending cuts.

Failing to reach a deal, economists say, could lead to another U.S. recession. Catz said Oracle's customers are still spending on software.

"What's going on in Washington - I don't know who it's necessarily influencing today. But I can tell you, our customers have been spending money with us even here in December."

On Tuesday, Oracle forecast earnings per share in the current fiscal third quarter of 64 to 68 cents, excluding items. That was about level with an average forecast for 66 cents.

"It tells you that there's still money being spend by enterprises on software. It's not like the world has ground to a halt," MacMillan said.

The picture was not so bright for Oracle's troubled hardware division, which it acquired with its $5.6 billion purchase of Sun Microsystems in January 2010. The division's revenue has fallen every quarter since it closed that deal.

Hardware systems product sales fell 23 percent from a year earlier to $734 million. Oracle had forecast that hardware sales would drop between 8 and 18 percent.

Chief Executive Larry Ellison told analysts he expected hardware systems revenue to start growing in the fiscal fourth quarter which begins March 1.

Oracle shares rose to $33.75 in extended trade after closing at $32.88 on Nasdaq.

(Reporting by Jim Finkle; Additional reporting by Noel Randewich; Editing by Gary Hill and Richard Chang)

Oracle Paying Next Year’s Dividends Now, at Low Tax Rate

Dividend payments are taxed at a preferential rate of 15 percent, but taxes could rise as high as 39.6 percent, depending on a taxpayer’s income bracket, if the Bush-era tax cuts expire as scheduled on Dec. 31. Higher income taxpayers will also be subject to a 3.8 percent surcharge on most investment income like dividends to help pay for President Obama’s health care law. That could bring the total possible tax rate on dividends to as much as 43.4 percent.

The Obama administration, which is pushing for higher dividend tax rates, is negotiating with Republicans in Congress over about $600 billion in automatic tax increases and government spending cuts that are scheduled to take effect in January, but no agreement is in sight.

Oracle accelerated second-, third- and fourth-quarter cash dividends totaling 18 cents a share of common stock, equivalent to $867 million, according to Thomson Reuters data.

In some cases, insiders are among the biggest beneficiaries of the special payouts, as well as shifts of regular dividends into 2012 from 2013. Oracle’s chief executive, Larry Ellison, the technology company’s largest shareholder, is entitled to dividends worth $198.9 million, according to Thomson Reuters data. Mr. Ellison did not participate in discussions or vote on the matter, Oracle said in a statement on Monday.

The accelerated dividend will be paid to stockholders of record as of the close of business on Dec. 14, with a payment date of Dec. 21, 2012.

H.P. Wins Suit Against Oracle Over Support for Servers

Hewlett-Packard accused Oracle of violating a contract when it decided last March that it would no longer make new versions of its database software compatible with H.P.’s high-end servers based on the Intel Corporation’s Itanium chips. Oracle maintained that it had no such contract.

The servers are used mostly by large corporations with rigorous computing needs.

Judge James P. Kleinberg of Santa Clara County Superior Court wrote on Wednesday that a contract existed between Hewlett and Oracle, and that Oracle was required to continue to offer its product suite on Hewlett’s Itanium server platform.

Oracle is required to port its products to Hewlett’s Itanium-based servers without charge, the judge ruled.

“The parties had a long history of trust and collaboration, the promises made by the Oracle executives were clear and unambiguous,” Judge Kleinberg wrote in the preliminary ruling, “and the parties’ relationship was very profitable for both companies.”

Oracle said it planned to appeal the decision.

“We made the decision as we became convinced that Itanium was approaching its end of life and we explained our rationale to customers,” Oracle said in a statement. “Nothing in the court’s preliminary opinion changes that fact.”

The dispute began after the companies became rivals when Oracle bought Sun Microsystems. The purchase moved Oracle into the server hardware field, in which it previously was a partner with Hewlett-Packard.

Also, Oracle hired Mark Hurd, H.P.’s former chief executive, in 2011 after he left Hewlett amid questions over his relationship with a female contractor.

Judge Kleinberg’s ruling did not address damages. It is possible that a jury will decide the issue.

Hewlett-Packard, which seeks as much as $4 billion in damages, called the ruling “a tremendous win” and said it expected Oracle to comply with its “contractual obligation as ordered by the court.”

H.P. Wins Suit Against Oracle Over Support for Servers

Hewlett-Packard accused Oracle of violating a contract when it decided last March that it would no longer make new versions of its database software compatible with H.P.’s high-end servers based on the Intel Corporation’s Itanium chips. Oracle maintained that it had no such contract.

The servers are used mostly by large corporations with rigorous computing needs.

Judge James P. Kleinberg of Santa Clara County Superior Court wrote on Wednesday that a contract existed between Hewlett and Oracle, and that Oracle was required to continue to offer its product suite on Hewlett’s Itanium server platform.

Oracle is required to port its products to Hewlett’s Itanium-based servers without charge, the judge ruled.

“The parties had a long history of trust and collaboration, the promises made by the Oracle executives were clear and unambiguous,” Judge Kleinberg wrote in the preliminary ruling, “and the parties’ relationship was very profitable for both companies.”

Oracle said it planned to appeal the decision.

“We made the decision as we became convinced that Itanium was approaching its end of life and we explained our rationale to customers,” Oracle said in a statement. “Nothing in the court’s preliminary opinion changes that fact.”

The dispute began after the companies became rivals when Oracle bought Sun Microsystems. The purchase moved Oracle into the server hardware field, in which it previously was a partner with Hewlett-Packard.

Also, Oracle hired Mark Hurd, H.P.’s former chief executive, in 2011 after he left Hewlett amid questions over his relationship with a female contractor.

Judge Kleinberg’s ruling did not address damages. It is possible that a jury will decide the issue.

Hewlett-Packard, which seeks as much as $4 billion in damages, called the ruling “a tremendous win” and said it expected Oracle to comply with its “contractual obligation as ordered by the court.”