Software revenue pushes up Oracle's Q2 earnings

Application sales up 57%, Ellison says

Oracle reported second-quarter 2005 earnings that beat analyst expectations on Monday, thanks to new software revenue and continued gains from licence updates and product support.

The rosy results came in right before the company announced that it finally wrapped up its takeover bid for PeopleSoft, agreeing to pay US$10.3 billion (NZ$14.5 billion) for the company.

Revenue for the quarter ended November 30 came in at US$2.76 billion, an increase of 10% over the US$2.5 billion it reported for the year-earlier quarter. Net income totalled US$815 million, an increase of 32% compared to US$617 million it brought in a year earlier.

Earnings per share landed at US$0.16, beating predictions made by analysts surveyed by Thomson First Call by two cents a share.

The quarter represents the company's highest level of profitability yet, Oracle said in a statement.

New software revenue came in at US$971 million, a 14% increase over the US$855 million reported for the year-earlier period. Software license update and product support revenue totalled US$1.3 billion, representing a 12% increase over the year-earlier quarter.

Service revenue increased slightly to US$533 million, 1% more than the US$529 million figure of a year earlier.

However, Oracle's emphasis on Monday was on its applications.

The recent quarter was great, but the real highlight was the 57% growth in new application sales, CEO Larry Ellison said in a conference call following the results.

And with completion of the PeopleSoft merger expected by December 31, Oracle predicted that its applications business would continue to make strides, increasing by double digits for the remainder of its fiscal year.

Although the company is planning a US$150 million reduction in research and development costs across both the Oracle and PeopleSoft product lines, it expects its application sales force to increase by 50% worldwide, allowing it to keep costs down while increasing revenues.

"Our sales force says something about how many applications we expect to sell," Ellison said.

Sales of its database software is also on track, Oracle said, after seeing its fifth consecutive quarter of growth.

Looking ahead, the company said that it expects total revenue for its fiscal third quarter to come in at between US$2.70 billion and US$2.79 billion, or an increase of between 8% and 11% year-over-year. New software license revenue is expected to be up around 8% for the third-quarter, while earnings per share should be in the US$0.14 to US$0.15 range, it said.

The company predicted that it would pay off its PeopleSoft buy within two years. Ellison added that the company would not consider any other large mergers until it had proven that this one worked.

The company was due to report its results on Thursday, but moved up the release in case it needed to discuss details from the quarter while in court this week, where it planned to continue its fight to take over PeopleSoft. That litigation has now been dropped.