March 1, 2024

Oracle’s Profit Rises, but Weak Hardware Sales Are Worrisome

Oracle said computer sales in its fourth quarter, which ended May 31, declined 6 percent to $1.2 billion compared with the same quarter a year earlier. When services are added in, the company’s hardware revenue was flat, at $1.8 billion.

Oracle has cast hardware as an important part of its future and the poor showing raised fears that the $7.4 billion acquisition of Sun was failing to live up to its billing.

Oracle’s shares fell more than 4 percent in after-hours trading. Investors have long been suspicious about Oracle being able to turn around the Sun server business, which struggled before the acquisition was completed in late January.

Oracle’s fourth quarter was the first time investors were able to see a full year-over-year comparison of that segment under Oracle’s ownership.

Brendan Barnicle, an analyst with Pacific Crest Securities, said the underwhelming results from the hardware business were not too worrisome. The hardware results, however, were still far lower than the company had forecast, he said.

“They identified this early on that they would rationalize the Sun business,” Mr. Barnicle said. “It takes a while to do, but all of us hoped that it would be done by now.”

Oracle’s executives emphatically dismissed the idea that hardware sales were suffering. They instead cast the decline as part of deliberate strategy to pare back unprofitable sales. Two Sun policies, the resale of other companies’ products and the sale of lower-cost servers, are not Oracle’s strategy, said Mark V. Hurd, Oracle’s co-president.

“I just think we are following the fundamentals of building a solid business,” he said in a conference call. He described the lost revenue as “valueless.”

Oracle’s profit nonetheless beat expectations. Excluding certain one-time costs, earnings were 75 cents a share; analysts had expected 71 cents a share, according to a survey by Thomson Reuters.

Oracle reported that overall net income in the fourth quarter rose 36 percent, to $3.2 billion, or 62 cents a share, from $2.4 billion, or 46 cents, in the quarter a year ago.

The company said revenue climbed 13 percent to $10.8 billion, from $9.5 billion. Analysts had expected revenue of $10.75 billion.

The decline in hardware sales was more than made up for by increases in Oracle’s main software business. New software license revenue, a critical measure of the company’s business because it brings recurring future revenue, grew 19 percent to $3.7 billion.

Executives also bragged about Exadata, a newer initiative to sell software bundled with servers to large corporations. More than 1,000 Exadata machines are installed worldwide, Oracle said, and the goal in the current fiscal year is to triple that number.

Oracle estimated that its first quarter revenue would rise 10 to 13 percent, which falls within analysts’ expectations. Adjusted income is expected to be 45 to 48 cents a share, also in line with the average estimate of 46 cents by analysts.

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