Enterprise technology giant Oracle (click ticker for report: ) reported solid fiscal year 2013 second-quarter results Tuesday afternoon. Revenue jumped 3% year-over-year to $9.1 billion, easily exceeding consensus expectations. Earnings per share, on a non-GAAP basis, jumped 18% year-over-year to $0.64 per share, also better than the consensus forecast.
Not surprisingly, the increase was largely driven by a jump in new software licenses and cloud subscriptions of 17%, to $2.4 billion, as the company continues to win new enterprise contracts. President and former HP (click ticker for report: ) CEO Mark Hurd cited share gains versus SAP (click ticker for report: ) in Europe as a strong growth driver, acknowledging that the company only started investing in its European business a year ago. Total software sales jumped an impressive 10% year-over-year to $6.6 billion.
Service revenue was relatively weak, dropping 5% (-3% ex-currency), but the company kept expenses flat, preventing a material drop in the segment’s earnings. Oracle’s hardware segment continues to be challenged, as total hardware revenue slipped 16% year-over-year to $1.3 billion. However, the firm’s engineered systems reported 70% sequential growth in bookings. Hurd added:
“We sold more than 700 Engineered Systems this quarter, great excellent wins at China Mobile, Facebook, Samsung, Time Warner Cable; and great Exalogic wins at Chevron, Vodafone and Wal-Mart.”
The fact that such prominent technology-centric companies are moving to Oracle’s products speaks highly to the quality of the company’s hardware. CEO Larry Ellison cited the acquisition of Sun Microsystems as a major contributor to the company’s growth. Ellison spared no victory lap, saying:
“Our $7.5 billion purchase of Sun has already proven to be the most strategic and profitable acquisition Oracle has ever made. Java, the world’s most popular programming language, was the key software asset we acquired when we bought Sun. Today our Java business is booming, growing over 34% this past quarter.”
Oracle’s cash flow generation prowess continued undisturbed during the first half of fiscal year 2013, generating $3.4 billion in free cash flow. The firm continues to return cash to shareholders, repurchasing $3 billion worth of stock during the second quarter, while also accelerating its fiscal year dividend payout prior to the end of 2012.
Going forward, the firm gave solid third-quarter guidance, but it came roughly in-line with consensus estimates. Revenue is expected to grow 1% to 5%, while non-GAAP earnings are expected to increase to the range of $0.64-$0.68 per share. New software and cloud could be a standout, with revenue growth expectations as high as 13% for the segment.
Though the company reported decent results, we believe shares are fairly valued at current levels. Oracle’s M&A strategy has been fairly successful, and we think the firm’s pristine balance sheet could lead to another transformative acquisition in the near future. We like the company’s prospects heading into calendar 2013, especially since its technology is geared toward efficiency (cost savings)–which corporations lust after in a low-growth environment. Still, we think other tech giants such as Intel (click ticker for report: INTC) and Microsoft (click ticker for report: ) look less expensive at current levels.