Oracle Reports Strong Quarter as Profits Rise

BOSTON (Reuters) - Oracle Corp., the world's No. 3 software maker, posted stronger-than-expected quarterly profit as operating margins hit their highest level ever for the period, sending its shares up 6 percent.

The company also reported a 14 percent rise in sales of new software licenses and gave an outlook for the current quarter that matched expectations on Thursday, reassuring investors who had feared that the weak economy would cause Oracle to miss.

Technology shares, including Oracle's, had fallen on concerns that the global credit crisis would hurt company and consumer spending.

"The results are better than the worst fears by quite a bit," said Mark Murphy, an analyst with Piper Jaffray.

Oracle, led by billionaire Larry Ellison, said net income rose to $1.1 billion, or 21 cents per share, in its fiscal first quarter ended August 31, from $840 million, or 16 cents, a year earlier.

Excluding special items such as acquisition-related expenses, profit per share was 29 cents, beating the average analyst forecast of 27 cents, according to Reuters Estimates.

Oracle said its adjusted operating margin was 40 percent, up 3.5 percentage points from a year-ago and the highest ever for its fiscal first quarter. Co-President Safra Catz told analysts on a conference call that she expected margins to continue to improve.

Edward Jones analyst Andy Miedler said that investors should not take Oracle's results as a sign of how other technology companies are faring in the economic downturn.

"Oracle is a very high quality company so we would expect them to do better than many technology companies. With Oracle to be one of the first out of the gate ... it would be premature to extrapolate too much," Miedler said. Most major tech companies report results starting mid-October.

One cause for concern, said Goldman Sachs analyst Sarah Friar, was a 12-percent drop in Oracle's sales of business management software to $331 million. Oracle competes with SAP AGin this market, and had in the previous quarter posted a 36 percent rise in sales.

Business management applications like Oracle's PeopleSoft and Siebel, tend to be more vulnerable to economic swings.

"Their apps number does make me worry a bit about what is going on externally in the economy. Apps to me is a leading indicator of what is going on in the economy," said Friar. "When you create a new project, that is typically when you buy a new application. When people stop spending, they stop buying new apps."