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Updated Tuesday, December 18, 2012 at 06:01 PM

Oracle 2Q earnings rise 18 pct to top Street view

By MICHAEL LIEDTKE
AP Technology Writer

Snapping out of a summertime lull, Oracle's latest quarter demonstrated that companies have been splurging on software and other technology as the year comes to a close, despite uncertainty about the economy's prospects.

The results announced Tuesday are an improvement from Oracle's previous quarter, when the business-software maker's revenue dipped slightly from a year earlier.

The most recent quarter spanned September through November. That makes Oracle the first technology bellwether to provide insights into corporate spending since the Nov. 6 re-election of President Barack Obama. It's also the first to report since negotiations to avoid the so-called fiscal cliff began to heat up in Washington.

The solid performance by one of the world's biggest technology suppliers suggests corporate decision makers aren't fretting too much about the economy falling off the cliff. The fiscal cliff refers to the combination of wide-ranging increases in taxes and cuts in government spending that will be automatically triggered Jan. 1 unless the White House and Congress can reach an agreement on how to soften the impact.

"As can see in our numbers, folks wanted to spend their budgets, continue to want to spend their budgets," Safra Catz, Oracle's chief financial officer, said in a conference call with analysts. "We are having an absolutely wonderful December so far."

Forrester Research analyst Andrew Bartels described Oracle's performance as encouraging, but said it's still too early to conclude other major technology vendors catering to big companies have been recording similar late-year gains. "This is good news, but it's not definitive," he said.

Oracle Corp. earned $2.6 billion, or 53 cents per share, in its fiscal second quarter. That's an 18 percent increase from net income of $2.2 billion, or 43 cents per share, a year ago.

If not for charges for past acquisitions and certain other costs, Oracle said it would have earned 64 cents per share. On that basis, Oracle topped the average earnings estimate of 61 cents per share among analysts surveyed by FactSet.

Revenue increased 3 percent from last year to $9.1 billion - about $900 million more than analysts had projected.

In a particularly heartening sign, Oracle said sales of new software licenses and subscriptions to its online services climbed 17 percent from last year to outstrip the most optimistic predictions issued by management three months ago. Bartels said the increase isn't quite as good as it looks because it includes contributions from two online subscription services, RightNow Technologies and Taleo, that Oracle didn't own at the same time last year. Oracle bought RightNow for $1.5 billion in January and acquired Taleo for about $2 billion in April.

The flow of new licenses and subscriptions, which represent about a quarter of Oracle's revenue, is closely tracked by investors because they spawn more revenue in the future from upgrades.

In the current quarter, which ends in February, Oracle expects software licenses and subscriptions to increase in the range of 3 percent to 13 percent from the previous year. The company, based in Redwood Shores, Calif., predicted its adjusted earnings in the current quarter will range from 64 cents to 68 cents per share on revenue ranging from $9.1 billion to $9.5 billion. That would be a 1 percent to 5 percent increase from the prior year.

Analysts are forecasting adjusted net income of 66 cents a share on revenue of $9.44 billion.

Oracle's stock added 52 cents to $33.40 in extended trading after the numbers came out. If that gain holds in Wednesday's regular trading session, it will mark a new 52-week high for the stock.

The specter of higher taxes prompted Oracle to make the unusual decision to bunch the next three quarters of stock dividends into a single payment that will be made before the end of the year. The move, announced earlier this month, is designed to ensure that Oracle CEO Larry Ellison, who owns a 23.5 percent stake in the company, and his fellow shareholders don't get hit with a higher tax bill on dividend income next year. The accelerated payment schedule will distribute about $206 million to Ellison, already one of the world's richest people, and will lower his tax bill by tens of millions, if the rates on dividend income rise next year.

Oracle would have fared even better if it could find a way to sell more computer servers and other hardware, something it has been unsuccessfully trying to do since completing its $7.3 billion acquisition of Sun Microsystems Inc. in 2010. The company's hardware revenue plunged 16 percent from last year.

In Tuesday's conference call, Ellison said some of the erosion in the hardware division has been by design as Oracle weeds out some of the less-profitable equipment. He assured analysts that hardware revenue will start increasing in the final quarter of Oracle's fiscal year - the period spanning from March through May. Sun's Java programming language already has been paying off for the software side of Oracle's business, according to Ellison.

"Sun has already proven to be the most strategic and profitable acquisition Oracle has ever made," he said.


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