Oracle Profits Down Off Slow Sales
Story from the Wall Street Journal

Oracle Corp. posted a revenue decline for the first time since 2002, hurt by a strong dollar and companies' continued reluctance to spend on new technology projects.

Oracle, a huge provider of software for businesses, is the first large technology company to report results that include the month of May, and investors were looking for signs that the recession is easing. In April and May, tech companies such as Cisco Systems Inc. and Intel Corp. said orders were leveling off and the worst of the recession might be over.

For the fiscal fourth quarter ended May 31, Oracle's profit dropped 7.2% to $1.89 billion and revenue fell 5.2% to $6.86 billion during what is seasonally one of the company's strongest quarters as it offers discounts to close deals before the end of the fiscal year. It was Oracle's largest earnings drop in three years.

Over the quarter, Oracle, which does about half its business overseas, was hit hard by a strong U.S. dollar. In constant currency, its revenue climbed 4%, and income was up 5%.

Sales of new software dropped 13%, or 4% in constant currency, as businesses held off making large tech purchases in the midst of a recession.

"Oracle isn't just competing against SAP, they're competing against companies delaying purchases," said David Rutchik, a consultant with Pace Harmon LLC, which helps companies negotiate deals with Oracle and other large software companies. Mr. Rutchik said that sales of Oracle's software take a long time to complete and that companies budgeted for many of the purchases made earlier this year before the stock market collapsed in October.

But the software maker, based in Redwood Shores, Calif., gave upbeat guidance for the current quarter, reassuring investors that it was well positioned despite the shortfall. For the current quarter, Oracle forecast that its revenue would decline 1% to 4% from a year earlier. The company also forecast that its operating earnings per share for the current quarter would be between 29 cents and 31 cents at the current exchange rate.

Oracle has weathered the recession better than many rivals, in part because about half of its revenue comes from support payments for past sales. Oracle has also gained market share against other software companies over the last year, analysts said.

"When you look at the results in the face of this economic headwind it's pretty impressive," said Brent Thill, an analyst at Citigroup Inc.

The company also said Tuesday it reported its highest margins ever, which it attributed to the ongoing support payments.

Several months ago customers "didn't feel good about spending money," said Oracle President Charles Phillips on a conference call to discuss results Tuesday. "It doesn't feel that way any more."

Oracle executives said they expect to close their $7.4 billion acquisition of Sun Microsystems Inc. in the current quarter. Sun shareholders are scheduled to vote on the sale July 16. Oracle didn't include revenue from Sun in its guidance. It has said it expects Sun to add $1.5 billion to Oracle's operating profit in the first year after the deal closes.

Oracle's shares, which are up about 50% from their March low, closed down 10 cents to $19.87 in 4 p.m. trading on the Nasdaq Stock Market.