Oracle to aggressively compete with cloud-based infrastructure rivals: Ellison

Oracle Corp's better-than-expected results and quarterly revenue outlook spurred cautious hope on Wednesday that the software maker is on track to revive growth curtailed this year by slow IT spending.

The No. 2 software maker posted fiscal-second-quarter results that exceeded expectations, while its outlook for third-quarter earnings was in line with Wall Street estimates.

"They seem to be getting their act together. We need more data but this was a good quarter," said Bernstein analyst Mark Moerdler, who rates Oracle's stock "market perform". "It's a work in progress, but it's in a better position than it has been."

Smaller, aggressive companies like Salesforce.com and Workday have been offering competitive software and Internet-based products at prices that often undercut Oracle, whose strategy is to integrate software with its own high-end, expensive hardware for greater efficiency.

In response, the four-decade old company has been rolling out its own cloud-based products while President Mark Hurd has hired new sales people and created sales teams aimed at going after specific cloud competitors.

"That's all they think about every day, is competing against every Workday prospect," Chief Excutive Officer Larry Ellison said on a conference call with analysts. "We have another team of people that compete against Salesforce."

With Oracle's stock up about 4 percent year to date compared to a 27 percent increase in the S&P 500, a majority of shareholders have expressed disapproval of Ellison's pay package, which critics say is too generous.

Next year may be tough for companies selling IT equipment to governments and companies.

Global spending on servers, storage and enterprise networks is likely to grow 4 percent next year, after increasing just 1 percent in 2013, according to market research firm IDC.

Oracle plans to compete aggressively against rivals offering cloud-based technology infrastructure services, like Amazon.com and Rackspace , Ellison said.

"We're going to be cost competitive and price competitive at the infrastructure level while being highly differentiated at both the platform level and the application level," he said.

Chief Financial Officer Safra Catz said that current-quarter revenue would grow between 3 percent and 7 percent in constant dollars, equivalent to between $9.2 billion and $9.6 billion. She said she expects current quarter EPS between 68 cents and 72 cents.

Analysts expected revenue of $9.351 billion and EPS of 70 cents for the current quarter, according to Thomson Reuters I/B/E/S.

"Given what we've been seeing in the last year I would call this a relief. Expectations were pretty negative going in," said FBR analyst Daniel Ives. "All the ingredients or the recipes for success are out there, in terms of a ramped-up sales force and cloud business, and the key now is execution on their strategy."

For the second quarter, Oracle said overall revenue rose 2 percent to $9.3 billion. That was above the $9.2 billion analysts had expected on average.

Net income fell to $2.6 billion, down 1 percent. GAP EPS rose 5 percent to 56 cents.

On an adjusted basis, Oracle earned 69 cents per share. Analysts expected second-quarter adjusted earnings per share of 67 cents.

The company reported a 1 percent decrease in new software sales and Internet-based software subscriptions for the quarter.

Investors scrutinize new software sales because they generate high-margin, long-term maintenance contracts and are an important indicator of future profit.

For the current quarter, new software and sales and subscriptions will grow between 2 percent and 12 percent, Catz said.

Revenue from Oracle's hardware systems products, which it acquired through the $5.6 billion purchase of Sun Microsystems in 2010, fell 3 percent to $714 million in the second quarter.

Oracle's hardware revenue has fallen since it bought Sun, with Ellison saying much of that decline is due to phasing out older low-margin systems in favor Oracle's premium hardware.

For the current quarter, hardware product revenue will be in a range between down 1 percent and up 9 percent, the company said.

Shares of Oracle were up 0.9 percent in after-hours trade at $34.11. They closed up 2.88 percent at $34.60.

© Thomson Reuters 2013