Oracle Q1 profit up 11% on improving software revenue

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Company expects SaaS division to generate $1 billion in annual sales.

Oracle Corp.’s fiscal first-quarter earnings climbed 11% as software revenue and margins improved, while hardware-systems sales continued to weaken.

Strength in Oracle’s traditional software business has led to improved earnings in recent periods, offsetting revenue declines in the company’s hardware segment.

Oracle is expanding aggressively outside its licensed software business to add cloud applications and social media to its offerings. It combined its Fusion online app with several acquired companies to launch the Oracle Cloud service this summer. It added a banking service to the suite earlier this month, and it soon plans to add an infrastructure service as well. The company expects the software-as-a-service, or Saas, business, soon will generate $1 billion in annual sales. Combined sales of software licenses and subscription to its cloud services grew 14% in the Americas.

“Today Oracle delivers more Saas applications than any other cloud-service provider in the world,” Chief Executive Larry Ellison told analysts on the call. For the past year the company has focused on “retraining sales people, adding people to focus on these new market opportunities,” he said.

The technology company has aggressively promoted its line of database-computing equipment following its $7.4 billion acquisition of Sun Microsystems in 2010.

Since acquiring Sun Microsystems, Oracle has been on the path to create high-performance machines to run its core database software products. The challenge has been to win customers for its new data appliances faster than customers scrapped the legacy Sun systems.

Mark Hurd, Oracle co-president, reaffirmed that the company still planned on achieving “growth in the fourth quarter in the overall business in hardware.”

The company is still adding to its sales and field engineering team to sell both its cloud services and new hardware systems and “their focus is going to be on driving new products,” he said.

Oracle said it was enjoying more than 100% growth in demand for its Exadata family of engineered computer systems but the overall 24% decline in hardware revenue showed “its commodity Sun business is deteriorating faster than expected,” said analyst Josh Olson of Edward Jones.

Sales of the former Sun products like servers and storage systems fell 16% in the May quarter.