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June 24, 2011 1:30 am

Oracle rules out M&A as too costly for now

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The sharp increases in share prices of young technology companies has led Oracle, Silicon Valley’s most acquisitive company, to turn its back temporarily on considering new deals, the company’s executives said on Thursday.

“They are by and large not attractively priced right now and don’t make sense and we’re not doing them,” said Larry Ellison, chief executive, on a conference call to discuss the company’s latest earnings.

“Anyone looks at the valuations today, and we don’t think they make any sense,” said Mr Ellison, who began a series of acquisitions nearly a decade ago that has left Oracle with a software business that tops IBM and is second only to Microsoft.

Safra Catz, Oracle’s co-president and a former investment banker, added that prices of potential targets were “quite ridiculous”.

The high price of acquisitions meant that Oracle had turned its sights inward for growth, for instance by boosting the number of sales people in its hardware division, said Mr Ellison.

Meanwhile, the company failed to meet its own targets in the latest quarter for its year-old efforts to turn around the operations of its last big acquisition target, Sun Microsystems.

Computer hardware sales from the former Sun Microsystems business fell 6 per cent, to $1.2bn, despite the company’s earlier forecast that revenues from the division would rise by 6-12 per cent.

Wall Street’s initial concerns about the hardware performance were lessened by stronger than expected guidance from Oracle for its current quarter, as well as accelerating growth in its core database software business.

The company’s shares initially fell by more than 6 per cent in after-market trading, but later partially recovered to trade off 3.5 per cent.

Oracle executives said the hardware decline was part of a plan to cut out unprofitable sales of servers and storage equipment.

“There’s no question we want to grow the top line,” said Mark Hurd, the former Hewlett-Packard chief executive who now runs Oracle’s hardware division.

“[But] to grow the top line right, getting rid of these low-margin businesses is key.”

The company’s revenues from new software licences, which are seen as a leading indicator of future performance, rose 19 per cent to $3.7bn.

Overall revenues climbed 12 per cent to $10.8bn. Oracle reported a 36 per cent increase in net income to $3.2bn.

Earnings per share, on the pro-forma basis used by Wall Street to assess the company, reached 75 cents, ahead of the 71 cents most analysts had expected.

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