Oracle 2Q Preview: Very Much In The Money

Even before Oracle Corp. (NASDAQ:ORCL), the No. 1 database developer, announces second-quarter results Tuesday, the early indications are the company's profit machine is doing fine.

The reason is that the Redwood Shores, Calif.-based developer with a big appetite for smaller companies has already announced an “accelerated dividend,” advancing the payout for the third and fourth quarters to the payout date for the second quarter.

So on Friday, Oracle will pay $870 million, including $199 million to CEO Larry Ellison, at 18 cents a share, triple the current quarterly payout. There's no official reason for the payout, but it's believed to anticipate the higher tax rates on millionaires like Ellison that could take effect on Jan. 1.

Oracle had cash and investments exceeding $31.5 billion last quarter.

For the second quarter, analysts expect net income to rise to 61 cents a share on revenue of $9.03 billion from 54 cents a share on revenue of $8.81 billion a year earlier. Still, although Ellison has hitched Oracle's long-term hopes to the cloud, about 80 percent of revenue still comes from databases, where the company has heavy competition.

Jefferies analyst Ross MacMillan said he was “surprised” that rival SAP (NYSE:SAP) won recent contracts at a German bank and a global consumer products giant over Oracle, which is one reason why he's neutral on the shares, with a “hold” rating and $34 price target.

MacMillan also estimated the accelerated dividend will trim the company's cash pile by around $600 million.

At Pacific Crest Securities, analyst Brendan Barnicle estimates that earnings will be a penny lower than the consensus, over concerns that Oracle fans “may have gotten ahead of themselves” in predicting a business pickup. Some deals may not have closed before Nov. 30, he said.

At S&P, analyst Angelo Zino worries about the “overhang” from the nearly three-year-old acquisition of Sun Microsystems, which put Oracle into the hardware sector. CEO Ellison maintains that sales of large servers and storage media enhance software and applications sales.

As a result, Oracle's cloud-based acquisitions of human-resource software companies like Taleo Corp. for $1.9 billion and RightNow Technologies for $1.5 billion should help, “but execution is key,” he said.

Besides SAP, Oracle also faces enterprise software products sold by rivals including Hewlett-Packard Co. (NYSE:HPQ), International Business Machines Corp. (IBM), Microsoft Corp. (NASDAQ:MSFT) and some specialists such as Informatica Corp. (NASDAQ:INFA) and Teradata Corp. (NYSE:TDC) as well as private giant SAS Institute.

Oracle shares rose 8 cents in Tuesday trading to $32.40. Including dividends, they've gained nearly 12 percent over the past year.