) --


(ORCL) - Get Report

is confounding the critics who said that its controversial Sun acquisition was a bad move. Sun has taken the database specialist out of its software comfort zone and into a new world of lower-margin servers and storage.

Many observers were scratching their heads when Oracle launched its shock $7.4 billion bid for Sun last year.

Sun was in extremely bad shape when Larry Ellison and his posse rode into Santa Clara. The struggling tech giant was

wrestling with widening losses and plummeting sales

and had earned a reputation for poor execution. Even before Oracle threw down its cash,


(IBM) - Get Report

had already walked away from a possible Sun deal, making Oracle's move even more surprising.

Oracle CEO Larry Ellison

Now, however, Oracle is breathing new life into its Sun business. The database giant

beat analysts' estimates in its fourth-quarter results,

thanks in part to a revitalized Sun.

Excluding items, Oracle brought in revenue of $9.6 billion, a 40% increase on the prior year's quarter, and just above analysts' estimate of $9.5 billion. Oracle also enjoyed a profit hike, earning 60 cents a share, a 30% jump on the same period last year. Analysts surveyed by Thomson Reuters had forecast earnings of 54 cents a share.

TheStreet Recommends

"These results were well above our and the Street's estimates, despite the first full quarter with lower-margin Sun under their belt," wrote Avi Cohen, an analyst at Avian Securities, in a note released on Friday. "We remain positive on Oracle as they head into an improved IT spending environment."

In Oracle's first full quarter of Sun revenue, sales of system hardware brought in $1.2 billion, and the new acquisition contributed more than $400 million to Oracle's fourth-quarter operating income. This is significant because Sun, operating as an independent company, recorded a loss in the same period last year.

During the conference call to discuss the fourth-quarter results, Oracle gave a bullish forecast for Sun. Thanks to Sun's recent performance, the tech giant said it's more confident that a profitable Sun will contribute at least $1.5 billion to its non-GAAP operating income in fiscal 2011, and $2.0 billion in fiscal 2012.

Sun, with its strong software sales and Oracle's ongoing saber-rattling against IBM and


(SAP) - Get Report

, is clearly resonating with investors.

Oracle's shares surged after its results, and rose 71 cents, or 3.2%, to $22.93 on Friday, side-stepping the broader retreat in tech stocks that saw the Nasdaq fall 0.25%.

At least one analyst, however, urges investors not to get carried away with Oracle's apparently resurgent Sun.

"Hardware product revenue came in slightly below expectations, at $1.23 billion, versus our estimate of $1.25 billion and consensus of $1.26 billion," wrote Pat Walravens of JMP Securities, in a note released on Friday.

While noting Sun's contribution to Oracle's operating income, and the database maker's attempts to improve its supply chain, Walravens is keen to hear more information on Sun.

"Hardware support revenue was $688 million, versus our estimate of $800 million and consensus of $843 million," he explained. "This is one area in which we plan to conduct more due diligence, as we do not know if Sun saw higher-than-expected churn in its existing customer base and/or is seeing more competitive threats."

-- Reported by James Rogers in New York

Follow James Rogers on


and become a fan of