Software Name Posts Sound Earnings

Oracle (ORCL) reported earnings tonight that beat expectations on earnings and revenues. The stock is down in aftermarket because there was a lot of love for the stock (support) headed into the print and this is sell on news. I'm a buyer at the open tomorrow. The quarter was very strong across the board in software, margins, cash flow, and guidance -- typically conservative -- was strong given that summer is the slowest season. Fundamentals are sound, and Oracle has one of the best technology stacks in the business.

Earnings rose 25% to $0.75 vs. the $0.71 consensus estimate and $0.72 whisper on 13% revenue growth to $10.8 billion vs. the $10.7 billion expectation. Software license grew 12% (23% for fiscal 2011) to $3.7 billion ahead of the $3.6 billion guide. Hardware revenues were $1.2 billion below plan, but attached rates grew meaningfully as the company has strategically decided to sell fewer products at higher prices and more at profitable levels ¿- this is supported by the fact that margins grew to 56% vs. the 55% consensus expectation and 48% last year. Margins are key, but it's the improved attached rates that will lead to higher top line growth.

This make sense, especially as its Exadata product (hardware/software product) posted 50% sequential growth, and with 300,000 customers -- including J.P. Morgan (JPM) , Apple (AAPL) , Boeing (BA) and Procter & Gamble PG:NYSE) -- the upgrade to this product will easily transition this into a more profitable product and higher sales. Again, as Exadata and Exalogic improve, the top line will as well.

Operating income grew 19% to $5.2 billion, and operating margin was up 48%, in line with plan. Geographic regions were very strong, including Japan (which grew in the quarter), with new license revenue growth of 16% in North America, 24% in Asia-Pacific and 21% in Europe, the Middle East and Africa. FCF was at $10.8 billion on the year and it repurchased 12.5 million shares this quarter for a total of $422 million and bought 40.million shares for the full, fiscal year worth $1.2 billion. It has $29 billion in cash on its balance sheet -- ample flexibility for further organic growth (increase its sales force, systems additions and distribution), acquisitions, buybacks and dividends.

Guidance was impressive on the software side with license software expected at 10% to 20% (way ahead of the 5% to 10% expectation), hardware at -5% to 5% (a little soft as it transitions to higher profitability solutions) and total revenues at 9% to 12% with earnings at $0.45 to $0.48. Most important, investors have tended to focus on the hardware recovery (Sun Microsystems), and management guided back to pre- SUNW margins in fiscal 2012; this division lost money before Oracle bought the company, and the company has invested an enormous amount of money in it. Yet, the company continues to post the highest margins in the software industry.

Regards,

Jim Cramer, Stephanie Link, and the Research Team

DISCLOSURE: At the time of publication, Cramer was long ORCL, AAPL.

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James J. Cramer is a Markets Commentator for TheStreet and CNBC, as well as co-founder of TheStreet. TheStreet is a publisher. Cramer graduated magna cum laude from Harvard College, where he was president of The Harvard Crimson. After receiving his J.D. in 1984 from Harvard Law School, he joined Goldman Sachs, where he worked in sales and trading. In 1987, he left Goldman to start his own hedge fund. While he worked at his fund, Cramer helped start Smart Money for Dow Jones and then, in 1996, he founded TheStreet.com.

Stephanie Link is the director of research & vice president of strategy for TheStreet. She is the co-portfolio manager for Action Alerts PLUS and works daily on the strategy and stock picks chosen for the portfolio. Stephanie is also responsible for recruiting talent for the paid sites including options, technicians and fundamental contributors. Prior to joining TheStreet, Link worked on Wall Street for 16 years. She spent nine years at the Prudential Equity Group as a managing director in U.S. institutional sales and as the New York sales manager covering top national accounts. She was the managing director of equity research in her final year at the firm. Prior to that position, she worked at Dean Witter as an institutional sales person for six years. Link's investment specialties include large-cap core stocks as well as value ideas.