By Aaron Ricadela - Dec 21, 2011 7:43 AM GMT+0700
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The Oracle Corp. campus stands in Redwood City, California. Photographer: David Paul Morris/Bloomberg
Dec. 20 (Bloomberg) -- Richard Williams, an analyst at Cross Research, talks about Oracle Corp.'s fiscal second-quarter profit that missed analysts' estimates as customers held off on purchasing database and applications software. Williams speaks with Adam Johnson on Bloomberg Television's "Street Smart." (Source: Bloomberg)
Dec. 20 (Bloomberg) -- Pat Walravens, an analyst at JMP Securities LLC, talks about Oracle Corp.'s fiscal second-quarter results and the outlook for the company. He speaks with Emily Chang on Bloomberg Television's "Bloomberg West." (Source: Bloomberg)
Oracle Corp. (ORCL), the world’s second- largest software maker, reported quarterly sales and profit that missed analysts’ estimates as customers held off on buying databases, applications software and computer systems.
Profit before some costs in the fiscal second quarter, which ended Nov. 30, was 54 cents a share on revenue, excluding certain items, of $8.81 billion, the company said in a statement today. On average, analysts had projected profit of 57 cents on sales of $9.23 billion, according to data compiled by Bloomberg. Oracle’s shares fell as much as 11 percent in late trading.
Oracle and other business-software companies are taking longer to close deals as companies gird for slow economic growth in the U.S. and the possibility of a recession in Europe next year, said Rick Sherlund, an analyst at Nomura Holdings Inc. New software licenses, an indicator of future revenue, rose less than Sherlund projected, and sales of hardware acquired through the Sun Microsystems deal fell more than expected.
“There’s nothing I can find in here that’s a silver lining,” said Brendan Barnicle, an analyst at Pacific Crest Securities in Portland, Oregon, who has an “outperform” rating on Oracle shares. “Every metric in here is below where consensus was. I don’t know how to sugar-coat it.”
Although sales of higher-priced hardware are accelerating, Barnicle said margins in the quarter were still below his estimate.
Third-Quarter Forecast
Sales excluding certain items in the current quarter, which ends in February, will increase 1 percent to 5 percent from a year earlier, co-president Safra Catz said on a conference call today. On average, analysts were predicting sales growth of 7.4 percent to $9.46 billion. Profit before some costs will be 55 cents to 58 cents a share, compared with analysts’ average 59- cent estimate.
Shares of Redwood City, California-based Oracle tumbled as low as $26.10 in extended trading. Before the report, they had gained 1.9 percent to $29.17 at the close in New York. The stock has declined 6.8 percent this year. The company also said it will buy back as much as $5 billion in stock.
In the second quarter, new software license sales rose 2 percent to $2.05 billion, compared with the $2.28 billion Sherlund estimated in a Dec. 15 research note.
Sales of hardware obtained in last year’s $7.4 billion acquisition of Sun Microsystems declined to $953 million, missing the $1.06 billion in revenue estimated by Sherlund.
Net income in the second quarter rose 17 percent to $2.19 billion, or 43 cents a share, Oracle said in the statement.
‘More Normal Quarter’
In the third quarter, software license sales will be unchanged to 10 percent higher, and hardware sales will decline 5 percent to 15 percent, Catz said.
“They’re spending more time with their customers talking about the economy,” Sherlund said in an interview. “As we go into next year, things will probably be a bit slower.” Sherlund is based in New York and has a “buy” rating on the shares.
Customers are adding more layers of management approval for technology purchases, which is slowing down the closing of contracts, Catz said today. In response, Oracle has added new “deal management” procedures to monitor signings and make sure the necessary approvals are in place.
“We’ll have a much more normal next quarter,” she said.
The effect of the declining value of the euro against the dollar is also hurting sales. Excluding the effect of currency fluctuations, revenue this quarter would increase 3 percent to 7 percent, Catz said.
Recession ‘Fears’
Jason Maynard, an analyst at Wells Fargo Securities, said in a Dec. 19 report that corporate spending on hardware and software may fall 8 percent in the first quarter, a steeper drop than the average 7.3 percent average decline during the quarter in the past 10 years.
“The fears of a global recession are permeating the IT decision-making process,” said Maynard, who is based in Santa Monica, California, and has an “outperform” rating on Oracle shares.
To help blunt the impact of a possible slowdown in software sales growth, Oracle Chief Executive Officer Larry Ellison has snapped up more than 70 companies in a $40 billion buying spree to add programs that help large corporations manage human resources and operations. The company has been using the acquisitions to build up its cloud business, meant to appeal to customers that are seeking to save money by letting them access computing power over the Internet.
Public Cloud
On Oct. 24, Oracle said it would buy online customer- service software company RightNow Technologies Inc. for $1.5 billion. Earlier that month, the company unveiled its Public Cloud service, which will run its database software and more than 100 new applications called Fusion in its data centers for customers.
Oracle, the largest database-software maker, is using the Sun acquisition to develop computer servers -- including high- end Exadata and Exalogic machines -- that run its database and applications. Still, its lower-priced systems using Intel Corp. chips are losing ground to competitors.
The company’s share of the worldwide server market declined to 6 percent in the third quarter, from 6.5 percent a year earlier, while Dell Inc. gained, market researcher IDC said.
Ellison told analysts on today’s call that Oracle’s hardware business could expand by the fiscal fourth quarter, which ends in May. Sales of Exadata, Exalogic and other high-end systems could reach $1 billion annually by the end of the fiscal year.
“Then we plan to double those sales again next fiscal year,” he said.
To contact the reporters on this story: Aaron Ricadela in San Francisco at aricadela@bloomberg.net
To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net
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