Updated from March 20Oracle ( ORCL) beat Wall Street's top- and bottom-line expectations in the third quarter, as software revenue grew strongly. The news gave Oracle's shares a much-needed boost. In recent trading on Wednesday, shares were up 65 cents, or 3.7%, to $18.20. The stock has languished for months, following a lackluster second quarter. Growth in the next quarter, however, will slow in the face of a very tough year-over-year comparison. Oracle's guidance for the May quarter actually missed analysts' projections by a narrow margin. The database giant said Tuesday that it posted a profit of $1.03 billion, or 20 cents a share, for growth of 35%. Revenue grew 25% to $4.4 billion. Excluding options and other items, Oracle earned 25 cents a share. Analysts polled by Thomson First Call were looking for a profit of 23 cents a share on revenue of $4.3 billion. Total software revenue was up 25% to $3.5 billion. New license revenue for application software grew by an unexpectedly strong 57% to $423 million, while database and middleware license revenue grew 10% to $967 million. Analysts were expecting application licenses to come in at $368 million and database and middleware licenses to hit $913 million. Oracle has spent more than $13 billion (net cash) to buy a basket of applications vendors, including PeopleSoft, Retek and Siebel Systems, and Wall Street has been looking for signs that the huge expenditure is paying off. And it now appears to be doing so.
"The applications number is huge," says Daniel Morgan, a fund manager at Synovus Investment Advisors. "It's a very good sign that the deals
Oracle CEO Larry Ellison has been putting together are paying off." Sales of new middleware licenses grew by a robust 82%. Ellison crowed about the company's progress in that sphere. "Our middleware business is now larger than BEA Systems' ( BEAS). It took us five years to catch and pass them," he said. BEA, one of the top three middleware vendors, grew similar sales by 8% in its fourth quarter to $168.7 million. (Oracle does not disclose actual sales figures for middleware but instead groups it with database sales.) With the third-quarter trophy now hanging on Ellison's wall, Oracle is setting its sights on the seasonally strong fourth quarter. Since last year's quarter was very strong, Oracle's executives took a cautious tone as they announced guidance on a conference call. "It was a blockbuster," said CFO Safra Catz. In the fourth quarter last year, Oracle posted a non-GAAP profit of 29 cents a share on total revenue of $4.9 billion. Catz said the company expects to post a profit of 30 cents a share and a profit excluding items of 34 cents a share, which equals Wall Street's expectations. Revenue will range from $5.39 billion to $5.59 billion, or a growth rate of 10% to 14%, down from growth of 25% the year before. With a midpoint of about $5.49 billion, the company's estimate is just below Wall Street's consensus of $5.53 billion. New software license revenue, Catz said, will grow by 5% to 15%, which at the midpoint is equal to Wall Street's expectations of about 10%.