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Oracle Churns Out Another Strong Quarter

Melding a hodgepodge of different software makers into a cohesive business is supposed to be difficult.

But Oracle Corp. is making the task look easy as the Redwood Shores-based company churns out one impressive quarter after another, nearly three years into a $25 billion shopping spree that is yielding bigger dividends than many skeptical software analysts and executives anticipated.

The latest gains surfaced late Thursday when Oracle reported software sales during its fiscal first quarter accelerated at the fastest clip in seven years.

Propelled by the robust growth, Oracle earned $840 million, or 16 cents per share, for the three months ended Aug. 31. That represented a 25 percent improvement from net income of $670 million, or 13 cents per share, at the same time last year.

"The numbers are very strong," said Global Equities Research analyst Trip Chowdhry. "Is their strategy paying off from a financial perspective? The answer is yes."

Investors seem to share that opinion. Oracle shares rose sharply on Friday morning, jumping to a new 52-week high of $21.94 before edging back somewhat to $21.85, still up 81 cents or 3.9 percent from Thursday.

Oracle's market value has climbed by about $36 billion, or 50 percent, since its flamboyant chief executive, Larry Ellison, began snapping up the company's smaller rivals in 2004. Oracle has devoured more than 30 companies so far in a bid to lure customers away from SAP AG, the leading seller of business applications software that helps companies manage their operations.

Ellison, whose fortune has swelled to an estimated $26 billion during the run-up in the company's stock, launched the expansion to build upon Oracle's long-established dominance in the database software market.

Although Oracle still trails SAP in revenue from business applications software, the gap separating the two appears to be closing, said AMR Research analyst Bruce Richardson.

"I would say that in the last 12 months, Oracle has certainly established itself as a much more viable software provider," said AMR Research analyst Bruce Richardson.

If not for stock option expenses, Oracle said it would have made 22 cents per share during the first quarter, a penny above the average estimate among analysts polled by Thomson Financial.

Revenue for the period totaled $4.53 billion, 26 percent above last year's $3.59 billion and easily surpassed the average analyst estimate of $4.34 billion. If not for a weak dollar that bolstered international sales, Oracle said its first-quarter revenue would have risen 22 percent.

Perhaps most importantly to investors, Oracle's sales of new software licenses climbed 35 percent to $1.09 billion, soaring past both management and analyst projections. Analysts had been anticipating an improvement in the mid-20 percent range.

Wall Street focuses on software sales because new licenses establish a pipeline for much greater future revenue from product upgrades and maintenance.

The spike in Oracle's first-quarter software sales was the largest since free-spending Internet startups were driving demand in 2000, said Safra Catz, the company's chief financial officer.

Demand for Oracle's applications software was particularly strong, with sales in that category rising 65 percent to $376 million.

The improvement included about $87 million in sales from two recently acquired companies, Hyperion Corp. and Agile Software Corp., whose products weren't sold by Oracle last year.

"It was a strong quarter across the board," said Piper Jaffray analyst Ajaykumar Kasargod. "The (sales) execution is really coming along."

Catz predicted Oracle's momentum will continue in the current quarter. She forecast the company's software sales will rise 15 percent to 25 percent in the three months ending in November to produce earnings of 26 cents or 27 cents per share, excluding stock option expenses, for the second quarter.

The first quarter is usually Oracle's weakest sales period because so many key decision makers take summer vacations.

"If things weren't going well, this is where you would see it," Catz told analysts during a Thursday conference call.

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