Oracle earnings on the rise

update Oracle reported on-target quarterly earnings Friday that rose 28 percent over the same period last year, despite a downturn in new software license sales.

The Redwood Shores, Calif.-based company reported net income of $440 million, or 8 cents per share, on revenue of $2.07 billion in its fiscal first quarter. That compares with $342.7 million in net income, or 6 cents per share, on revenue of $2.03 billion in the year-ago quarter. The earnings matched projections from a consensus of analysts surveyed by First Call.

Oracle reported that software license sales were down 7 percent to $525 million in its first quarter, while software license renewals and support contracts sales rose by 14 percent to $1 billion. First-quarter operating margin was 30 percent versus 29 percent last year, the company said.

"Oracle's first quarter is always its smallest fiscal quarter coming off the fourth quarter, which is its highest," Oracle Chief Financial Officer Jeff Henley said in a conference call with analysts. "A slow start in Q1 is not going to keep us from having a good year."

Henley estimated that revenue in Oracle's second quarter will grow between 2 percent and 5 percent. First Call projected that Oracle will report revenue of $2.4 billion, with earnings of 11 cents per share.

Industry analysts were less upbeat, describing the quarter as a serious disappointment given the downturn in new software license sales.

Meta Group analyst John Van Decker said Oracle made a "big push" to hit sales numbers during its fiscal fourth quarter, but warned that the shortfall in new licenses in the first quarter could indicate that a recovery in overall IT spending remains elusive.

"This has to be seen as a major miss," Van Decker said. "Oracle has been able to do things with cost-cutting to remain profitable, but this could be telling us that IT spending hasn't made the comeback we've been hoping for."

Both ends of Oracle's software business reported negative growth over the first quarter. Henley said Oracle's applications business generated $107 million in new license sales, a 4 percent drop compared with the same period last year. Oracle's database software business saw $408 million in sales during the first quarter, a 7 percent decrease from a year ago.

Henley promised better sales results over the rest of fiscal 2004. He said splitting Oracle's software sales force into two separate entities is one step the company has taken to improve its performance.

"We believe that everything is in place to have a better fiscal year," he said.

However, Van Decker indicated that it may be tough for Oracle to bounce back quickly. He said the falloff in the company's database applications business is a result of "increasing pressure" on the database market, Oracle's mainstay.

"It's clear that the database business is under the most stress, but I think the PeopleSoft acquisition bid is also hurting Oracle's applications software performance," Van Decker said.

Oracle remains steadfast in its bid to acquire rival PeopleSoft. This week, Oracle Chief Executive Larry Ellison reiterated his determination to close the deal but would not say whether he plans to raise the offer of $19.50 per share that's pending in the hostile takeover bid.

Analysts and former Oracle executives see the move to acquire PeopleSoft as confirmation that Ellison and other executives believe that the database business has slowed. The company is looking to acquire Peoplesoft's customer base in order to offset diminishing database-software sales, which account for nearly 80 percent of Oracle's total revenue, analysts said.

Van Decker said Oracle would likely need to "bring more innovation to the market" in order to boost software license sales, but noted that database software and applications segments may also be suffering as a result of changing trends in IT spending.

The company spent this week playing up its new emphasis on grid computing at its OracleWorld conference in San Francisco. The technology--which centers on using collections of computers or computer networks to allow for sharing of processing power, storage, applications and data--is already being pursued by Oracle's main competitors, IBM and Microsoft. At the conference, Oracle launched a string of related products and plans to create an industry consortium around commercial usage of grid computing.

CNET News.com's Mike Ricciuti contributed to this report.