Update: Oracle profit climbs 15 percent in fourth quarter

Oracle Corp.’s year-long battle to acquire PeopleSoft Inc. appears not to have distracted it from selling software. The database giant reported revenue of $3.1 billion for its fiscal fourth quarter, up 9 percent from a year earlier, while its operating margin was at its highest ever, the company said Tuesday.

Net income for the quarter, which ended May 31, was $990 million, or $0.19 cents a share, up 15 percent from $858 million, or $0.16 cents a share, in the same period a year earlier, Oracle said. The earnings beat analysts’ forecasts by a penny, according to a consensus estimate from Thomson First Call.

Software revenue climbed 12 percent, to $2.5 billion, while services revenue dropped 4 percent to $558 million, Oracle said. Sales of new database licenses grew 15 percent, the company said, helped by speedy sales of its new 10g database and related add-ons.

Operating income came in at $1.4 billion for the quarter and $3.9 billion for the full year — higher than Oracle’s best year during the Internet bubble, Jeff Henley, Oracle’s chairman and chief executive officer, said in a conference call to discuss the results. Oracle’s operating margin for the quarter was 46 percent. “We had a very strong finish to a very good year,” Henley said.

Oracle, in Redwood Shores, California, has spent the past 12 months trying to pull off a hostile takeover of applications rival PeopleSoft. It is currently in San Francisco federal court battling the U.S. Department of Justice’s efforts to block the merger on competition grounds. European regulators have also expressed concerns about the deal.

The effort may not have distracted Oracle’s sales teams but it has chewed up some of its cash. General and administrative expenses for the year included $54.2 million of professional services fees connected to the takeover bid, Oracle said.

Henley indicated that the company has an appetite for further acquisitions. It will be conservative in buying back shares in order to keep money on hand for potential deals, he said.

“As long as we have it in mind to do some large acquisitions we’ll be a little more conservative in buying back shares. … The best use of our cash is to grow our business, and whatever’s left over we’ll use to repurchase shares,” he said.

In fact, Oracle is in the process of acquiring privately held startup Collaxa Inc., a maker of business process management software, according to various industry sources. Oracle has declined to comment on the deal.

Henley admitted that sales of Oracle’s core database product are not growing especially well, but said add-on products such as its Real Application Cluster software and Enterprise Manager, are helping to lift sales. RAC, which is for clustering groups of servers, got off to a slow start, but sales of the software increased 60 percent in the fiscal year ended May 31 compared to the prior year, said Larry Ellison, Oracle’s chief executive officer, who was also on the call-in.

Revenue from new application licenses declined 6 percent in the quarter, but climbed 2 percent for the full year. Oracle plans to release an upgrade to its E-Business Suite 11i in the middle of the year — version 10 — focused on integration and business intelligence, Ellison said.

Oracle’s application server business, in which it competes primarily with market leaders IBM Corp. and BEA Systems Inc., is doing particularly well, Ellison said. Sales of new licenses grew 15 percent in the quarter, while BEA’s new license revenue declined, he noted, albeit from a higher base. “We think we’re doing extremely well against BEA and IBM in application server market share,” Ellison said.

Oracle is stepping up its efforts to target Microsoft Corp. in the small- and mid-size business market. It launched a low-priced version of its database last year, called Standard Edition One, for use on two-processor systems, and is partnering with more systems integrators and independent software vendors, Henley said. Oracle hopes to exploit the “new window of opportunity” opened up by the delayed release of Microsoft’s next big database upgrade, code-named Yukon, Henley said.

By geography, sales growth was strongest in the Americas and Europe, with the Asia-Pacific region doing less well. On the whole, however, business continues to improve gradually worldwide, with businesses starting to commit to more big projects, Henley said.

Looking ahead to the first quarter of fiscal 2005, Oracle expects revenue growth of 6 percent to 9 percent from a year earlier, with growth from new software licenses in the range of 5 percent to 15 percent, Henley said. It expects a profit of $0.09 per share, in line with analysts’ current forecasts.

“We expect business will continue to improve modestly and we believe our competitive position will improve,” he said.