Oracle Surges Despite Revenue Miss

Even in a tough economy, investors are rallying behind the tech bellwether.
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Shares of database giant


(ORCL) - Get Report

rose Friday as investors shrugged off the firm's second-quarter revenue miss and the effects of the

strengthening dollar


For the second quarter of fiscal 2009, Oracle posted revenue of $5.6 billion, a 5% increase from the same period last year, although that was below analysts' estimate of $5.84 billion.

Oracle's stock nonetheless rose $1.22, or 7.3%, to $17.83, underlining investors' continuing faith in the company, which has been battling both a rising greenback and a weakening global economy.

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During the second quarter, software revenue grew 8% year-over-year, although new license sales, which is a key indicator of Oracle's performance, were down 3%. Oracle's revenue from services fell 2% year-over-year.

Analyst firm JMP Securities maintained its market perform rating on Oracle in a note released Friday, but warned that the software giant is feeling the effects of the recession.

"Putting aside all the noise about exchange rates, the key observation, in our opinion, is that Oracle's business is grinding down along with the economy," wrote JMP Securities analyst Pat Walravens.

Walravens explained that, on a constant currency basis, Oracle's license revenue grew 5% year-over-year in the second quarter, compared with 10% and 20% growth rates in the previous quarters.

For the third quarter, Oracle issued earnings guidance between 31 cents and 33 cents, below analysts' estimate of 34 cents. The company expects third-quarter revenue of $5.43 billion to $5.59 billion, short of the consensus of $5.84 billion.

JMP Securities lowered its Oracle earnings estimate for fiscal 2009 from $1.47 to $1.45. On average, analysts are calling for $1.46.

Despite the challenges facing his company, Oracle CEO

Larry Ellison

struck a typically aggressive tone during a conference call late Thursday.

"We believe that we're at least the size of


(IBM) - Get Report

, or we may have passed them

in middleware software sales," he said.

Oracle, which claims to be growing its middleware sales at four to five times faster than IBM's WebSphere business, reeled off a long list of companies using its Fusion software during the conference call, including


(RTN) - Get Report



, the

German Federal Employment Office

and Spanish telecom giant


(TEF) - Get Report


Ellison also fired a shot across the bow of software rival

(CRM) - Get Report

, claiming that his firm is boosting its presence in sales of on-demand software.

"When we compete head-to-head with, we win more deals than we lose, and that's new in the last couple of quarters," he said.

Ellison admitted, however, that it is still early days for the firm's "database machine," a prepackaged mix of Oracle software and


(HPQ) - Get Report


"We think it going to be a while before we are able to convert this pipeline," he said. "That business looks very, very promising, and should help us convert growth over the next 18 months."

The Oracle CEO also briefly discussed the firm's M&A agenda, explaining that there are plenty of bargains in an economic downturn.

"Some companies have much more attractive valuations right now, but I'm not sure that they would be wildly enthusiastic about being selling for cash at this point in time," he said, in response to an analyst's question.

Oracle, which has $10.6 billion in cash and investments, is certainly on the lookout for deals, according to Ellison, who did not reveal the identities of the firm's targets.

"We're looking at a number of small acquisitions in the vertical areas and some potential opportunities for a large company acquisition if the price is right," he said.