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PeopleSoft deal boosts Oracle revenue but cuts profit

PeopleSoft deal boosts Oracle revenue but cuts profit

Oracle's PeopleSoft acquisition cut into its profit in its most recent quarter but lifted its applications revenue, Oracle said in its earnings report.

Oracle's acquisition of PeopleSoft cut into its profit in its most recent quarter but significantly lifted its applications revenue, Oracle reported Tuesday as it released results from the third quarter of its 2005 fiscal year.

Oracle reported total revenue for the quarter ended Feb. 28 of US$2.95 billion, slightly short of the US$3.07 billion consensus forecast of analysts polled by Thomson First Call. Revenue would have been US$3.09 billion if Oracle had included certain revenue that PeopleSoft would have recognized as an independent company but which Oracle excluded for accounting purposes, it said. The company had revenue of US$2.51 billion in last year's third quarter, before its December 2004 acquisition of PeopleSoft.

Oracle's net income for the quarter dropped 15 percent from last year, to US$540 million, or US$0.10 per share, as sales and marketing, restructuring and stock-based compensation costs rose. In 2004's third quarter, Oracle had net income of US$635 million, or US$0.12 per share.

As in past quarters, Oracle's database software drove most of its revenue: New database software license revenue rose 12 percent, to US$795 million, and revenue from database software license updates and services grew 6 percent, to US$1.3 billion.

Oracle's applications revenue shot up to US$851 million, but acting Chief Financial Officer Safra Catz said PeopleSoft brought in US$374 million of that total. Oracle began consolidating PeopleSoft's results into its own on Dec. 29.

Oracle's new applications license revenue for the quarter was US$121 million -- down 14 percent from last year not counting the US$31 million Catz said PeopleSoft contributed.

Oracle said in September that Chairman and Chief Executive Officer (CEO) Larry Ellison would no longer participate in the company's quarterly earnings calls, but Ellison showed up on Tuesday's call, along with Catz and Oracle's other co-president, Charles Phillips. The call took place hours after Oracle won a bidding war with rival SAP to buy retail software maker Retek Inc., and less than a week after Oracle's chief financial officer, Harry You, unexpectedly left his post to take on the CEO job at services company BearingPoint.

Oracle agreed to pay US$630 million in cash for Retek, not long after it spent US$10.3 billion in cash buying PeopleSoft. In response to analyst questions about Oracle's voracious appetite for acquisitions, Ellison said Oracle does not plan to do any major acquisitions this quarter. However, he followed that by saying Oracle considers its Retek buy "tiny."

"It was tiny compared to PeopleSoft," Ellison said. "We really intended to take a rest after PeopleSoft. The timing on Retek was not determined by us. SAP announced a purchase of Retek, and we thought the retail industry was strategic for us, and we had to respond. We would have preferred not doing it exactly at this time."

Ellison also addressed Oracle's applications growth, saying Oracle expects more modest gains in future quarters. PeopleSoft had "an absolute blowout quarter" and exceeded revenue expectations by more than US$100 million, he said. Oracle plans to include a detailed breakdown of PeopleSoft's contribution to its results in its quarterly report to the U.S. Securities and Exchange Commission, which Catz said will be filed in the next few days.

"(PeopleSoft) bled that pipeline dry" in the weeks before Oracle bought them, Ellison said. "We think it's going to take a couple of quarters to rebuild that pipeline."

While Oracle will break out PeopleSoft's results in the most recent quarter, it does not expect to do so in future quarters, because its new sales contracts make it difficult to separate sales of its applications from PeopleSoft's, executives said.

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More about First CallHISOraclePeopleSoftRetekRoseSAP AustraliaSecurities and Exchange Commission

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