Oracle's Q4 profits grow 32%, but shares fall on weak hardware sales
Enterprise software giant Oracle Corp. (NASDAQ:ORCL) reported late Thursday that fiscal fourth quarter profits surged 32%, helped by strong sales from the company's software and services business, but a decline in hardware sales overshadowed gains.
In morning trade, Oracle's shares lost 4.31% to $31.06 as of 11:18 a.m. EST.
Shares also fell as much as 5% in after-market trading Thursday as investors worried over Oracle's performance in the server hardware division, which it had acquired through its purchase of Sun Microsystems last year for $7.3 billion.
The Redwood City, California-based company said sales in hardware dropped 6% to $1.2 billion. It initially forecasted increases of 6% to 12% back in March.
The company said the reason for the decrease is due to its plan to cut out unprofitable sales of servers and storage equipment.
"There's no question we want to grow the top line," said Oracle President Mark Hurd, the former Hewlett-Packard chief executive who now runs Oracle's hardware division.
"But to grow the top line right, getting rid of these low-margin businesses is key," he added.
In a conference call after its earnings release, Oracle said it anticipates first quarter hardware sales to be up 5%, or down 5%.
However, in the latest quarter, or the three months ending May 31, Oracle posted a 36% increase in profits to $3.21 billion, or 62 cents per share, up from $2.36 billion, or 46 cents per share, a year ago.
Oracle's adjusted earnings, excluding one-time costs, grew to 75 cents from 60 cents, exceeding the 71 cents a share predicted by analysts.
"This strong organic growth combined with continuously improving operational efficiencies enabled us to deliver a 48% operating margin in the quarter," said Hurd.
Total sales also climbed 13% to $10.8 billion, just ahead of analysts' estimates of $10.75 billion.
New license software sales, a key metric used to measure future revenue, gained 19% to $3.7 billion, beating its own predictions of between 4% to 14% growth, the software company said. It expects new software license sales to grow 10% to 20% in the first quarter.
Software license updates and product support revenues were up 15% to $4.0 billion, compared to $3.4 billion a year ago.
The software companies Exadata and Exalogic systems contributed to fourth quarter growth, Oracle said. More than 1,000 Exadata machines are currently installed worldwide and the company aims to triple that number in the current fiscal year.
Looking ahead, the software maker expects to post first quarter profit of between 45 cents to 48 cents a share, aligned with economists' forecasts of 46 cents, alongside a predicted boost in revenue in the range of 10% to 13%.
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