Oracle meets earnings expectations, but misses on revenue

Posted Sep 17th 2009 8:00AM by Tom Taulli
Filed under: Earnings Reports, Yahoo! (YHOO), AT and T (T), Sun Microsystems (JAVA), Oracle Corp (ORCL)

Through aggressive M&A, Oracle (NASDAQ: ORCL) has expanded its software into areas like enterprise resource planning (ERP), customer relationship management (CRM) and middleware. But the fact remains that the company still has a tremendous franchise in the database market. And the nature of this market is awesome. For example, Oracle has recently implemented a 250 terabyte database for AT&T (NASDAQ: T) and one for 700 terabytes for Yahoo! (NASDAQ: YHOO).

It certainly makes for a highly profitable business. In Oracle's fiscal Q1 report issued Wednesday, the company posted profits of $1.1 billion or 22 cents per share and operating cash flow of $3.7 billion.

Good, huh? Well, things were a bit light on the top-line. Revenues declined by 7% to $5.1 billion. The Street was looking for $5.25 billion to $5.3 billion.

There was another problem: licensing revenues dropped 17% to $1 billion.

True, Oracle felt the headwinds of adverse currency moves. Yet, there has also been some pushback from customers, especially because of the continued economic uncertainty.

To perk-up revenues, Oracle has some key products that should make a difference. For example, the Exadata computer will help get a bigger piece of the lucrative data warehousing market.

However, perhaps the biggest driver -- for the next year -- is the proposed $7.4 billion acquisition of Sun Microsystems (NASDAQ: JAVA). Apparently, the deal will generate around $1.5 billion in operating income. So no doubt, Oracle definitely wants to resolve the issues of the antitrust folks at the European Commission.

Tom Taulli is the author of various books, including The IPO Primer and The Complete M&A Handbook.

Tags: earnings, featured, inthenwes, orcl, Software