Oracle Corp.'s latest quarterly results Thursday underscore the critical role its software business plays, despite the company's push to become a more well-rounded technology vendor by selling computer servers.
Oracle's net income increased 36 percent as new sales of business software were at the high end of its expectations. Revenue rose 13 percent.
But the company's stock fell as its hardware division stumbled. The stock rebounded somewhat after Oracle issued guidance that was in-line with analysts' predictions.
Oracle bought fallen Silicon Valley star Sun Microsystems last year for $7.3 billion. That thrust Oracle into the computer server business.
The transformation has made CEO Larry Ellison one of the world's richest men. It also made an enemy of longtime partner Hewlett-Packard Co.
Ellison has repeatedly said that he wants to focus Sun's business only on higher-profit deals. As a result, he has warned, some lower-margin deals may fall off.
Now that Oracle has had Sun for a full year, the effect of Ellison's strategy is coming into focus.
Oracle said its net income was $3.21 billion, or 62 cents per share, in its fiscal fourth quarter, which ended May 31. That compares with $2.36 billion, or 46 cents per share, a year ago.
Excluding stock-based compensation and one-time expenses, Oracle earned 75 cents per share, higher than the 71 cents per share that analysts polled by FactSet expected.
Revenue of $10.78 billion was slightly higher than the $10.76 billion that analysts expected.
Oracle's software revenue rose 17 percent to $7.70 billion. Revenue from new software licenses -- a key metric for predicting future revenue -- came in at the high end of Oracle's previous forecast.
Safra Catz, Oracle's co-president, said revenue growth from new software licenses came without a boost from new acquisitions.
But revenue in its hardware division was flat at $1.83 billion. Stronger sales of hardware support contracts masked a 6 percent decline in revenue from computers sold.
Investors appeared unsettled by what they saw. Oracle's stock fell $2.36, or 7.3 percent, to $30.40 in extended trading, after the results were reported. It recovered a few percentage points after the guidance was issued during a conference call with financial analysts.
The server market has generally been strong coming out of the Great Recession as companies invest in Internet infrastructure.
What was unclear from Oracle's results was whether its weakness in hardware resulted from a downturn in the market or from competition. HP and IBM Corp. have relentlessly pursued the customers that Oracle got through the Sun purchase. Sun's share of the server market has declined over the past year.
Many analysts had expressed skepticism about Oracle's ability to make money on a company that had been losing billions of dollars for years.
Despite the downturn in hardware, Sun said its profit margin rose as the company improved operational efficiency. Catz said the results "clearly exceeded even our own high expectations for Sun's business."
For the current quarter, Oracle said it expects net income of 45 cents to 48 cents per share, excluding items, which is in line with expectations for 46 cents per share. Revenue should grow 10 percent to 13 percent, the company said. That translates to $8.25 billion to $8.48 billion and is in line with the $8.30 billion analysts are expecting.
Oracle said it expects revenue from new software licenses to grow 10 percent to 20 percent to $1.43 billion to $1.56 billion. The company expects revenue from hardware to fall up to 5 percent or increase up to 5 percent.