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Oracle profit beats outlook, easing ‘fiscal cliff’ worries

Ted S. Warren/AP

Technology giant Oracle Corp. said software sales growth will stay strong into the new year despite a looming fiscal crisis that investors have worried could cause a slump in IT spending.

Shares of the world's No. 3 software maker rose 2.6 per cent after it reported fiscal second-quarter revenue and earnings that surpassed Wall Street forecasts.

Oracle president Safra Catz told investors that businesses were still looking to spend money already allocated to 2012 technology budgets.

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"Folks want to close deals," she told analysts on a conference call following the earnings release on Tuesday. There has been "no negative impact on pricing. Pricing remains very good for us."

Oracle said software sales would grow 3 to 13 per cent this quarter, which runs through February. It expects fiscal third-quarter hardware products sales to be flat to down 10 per cent from a year ago.

The company's software and hardware forecasts were roughly in line with Wall Street expectations, according to FBR Markets analyst Daniel Ives.

Oracle reported that software sales and cloud software subscriptions rose 17 per cent from a year earlier to $2.4-billion (U.S.) in its fiscal second quarter ended Nov. 30.

Oracle had forecast that new software sales would climb 5 to 15 per cent from a year earlier when it last reported earnings on Sept. 20.

"I would call it an early Christmas present," Mr. Ives said. "It's a positive sign for the overall technology sector."

Investors pay close attention to new software sales because they generate high-margin, long-term maintenance contracts and are an important gauge of the company's future profits.

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Oracle posted a second-quarter profit, excluding items, of 64 cents per share, beating the average analyst forecast of 61 cents according to Thomson Reuters I/B/E/S.

Jefferies & Co. analyst Ross MacMillan said Oracle's results are encouraging for other makers of business software, many of which end their quarter on Dec. 31.

Some investors have worried that corporations would postpone spending on technology projects because of uncertainty over the year-end deadline for Congress and U.S. President Barack Obama to reach a compromise to thwart an automatic rise in tax rates and government spending cuts.

Failing to reach a deal, economists say, could lead to another U.S. recession. Ms. Catz said Oracle's customers are still spending on software.

"What's going on in Washington – I don't know who it's necessarily influencing today. But I can tell you, our customers have been spending money with us even here in December."

On Tuesday, Oracle forecast earnings per share in the current fiscal third quarter of 64 to 68 cents, excluding items. That was about level with an average forecast for 66 cents.

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"It tells you that there's still money being spend by enterprises on software. It's not like the world has ground to a halt," Mr. MacMillan said.

The picture was not so bright for Oracle's troubled hardware division, which it acquired with its $5.6-billion purchase of Sun Microsystems in January, 2010. The division's revenue has fallen every quarter since it closed that deal.

Hardware systems product sales fell 23 per cent from a year earlier to $734-million. Oracle had forecast that hardware sales would drop between 8 and 18 per cent.

Chief executive officer Larry Ellison told analysts he expected hardware systems revenue to start growing in the fiscal fourth quarter which begins March 1.

Oracle shares rose to $33.75 in extended trade after closing at $32.88 on Nasdaq.

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