Oracle Q4 Rather Dismal

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Dec 09, 2014
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After IBM (IBM, Financial) in its Q3 reports, Oracle (ORCL, Financial) repeats the dismay in its Q4 results. As we had stated in every tech articles of ours the sector has been witnessing a lot of activity of late but at the same time has become very volatile and rather un-predictive. From the second half of 2014 the rapid evolution of the tech sector has threateningly shortened the life of all technical products be it hardware or software and the tech companies trying to gasp for breath in this race has been falling out badly. Let us take a stock of the Q4 numbers of Oracle to find out what went wrong and what should be the outlook.

Q4 Number Mix

Oracle Corp on Thursday posted fiscal fourth-quarter results that disappointed investors looking for more progress against rivals selling web-based services, sending its shares spiraling down into a tizzy.

In the past three months based on the market expectation of an uptrend in software and a huge breakthrough in cloud computing its share prices had surged by over 10% and grew at a rate double to that of S&P 500. But all the steam fizzed out after the dismal numbers declared last Thursday and cast doubt onto Oracle’s execution in an industry facing increasingly tight competition.

“It’s a bit of a jaw-dropper, in terms of Oracle missing results across the board in its historically strong fiscal year-end quarter,” said FBR analyst Dan Ives. “It’s like Spain getting knocked out of the World Cup in its first week.”

Smaller, aggressive companies like Salesforce.com Inc. (CRM, Financial) and Workday Inc. (WDAY, Financial) have been offering competitive software and Internet-based products at prices below Oracle’s offering thus making its survival in price run difficult.

Oracle’s meager quarterly results underscore soft spending across the enterprise technology industry. Furthermore owned IT operation spending can further bottom out due to the transition of IT companies into cloud services which is more cost efficient, Summit Research analyst Richard Williams stated.

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“As it moves to the cloud, overall tech spending becomes worse than a zero-sum game,” Williams said. “There’s going to be a lot of pain.”

Even though the four decade old IT honcho Oracle has been offering its own cloud based products which is currently in vogue, however they sum up to only 5% of its overall revenue and the other revenue earning products are faced against redundancy challenge, hence they are not being able to create much firework for the tech giant as expected.

What Next

A string of acquisitions fueling Oracle’s growth has slowed of late although the company is in talks to buy software maker Micros Systems Inc. going by the Bloomberg report last week.

“One thing that’s clear is they need to get this M&A engine started again,” Ives said.

For the next fiscal first quarter, Oracle expects software and cloud computing initiatives by the company to drive revenue growth between 6 percent and 8 percent, Chief Financial Officer Safra Catz told analysts on a conference call. The forecast was based on predictions of software and platform related cloud services offerings which are slated to grow between 25 percent and 35 percent.

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Also Oracle has sounded the alarm bells on its hardware system revenue which can see a probable downside by 1% to 3%.

Quoting a report from Thomson Reuters (TRI, Financial) in the fourth quarter Oracle’s overall revenue rose by 3% to $11.3 billion which missed the street expectation by a considerable $0.18 billion which was tanked up at $11.48 billion of revenue.

Net income fell 4 percent to $3.6 billion. Earnings per share remained unchanged at 80 cents. On an adjusted basis Oracle earned 92cents per share against the market expectation of 95 cents per share.

Revenue from Oracle’s hardware systems products grew by just 2% to $870 million.

Shares of Oracle fell more than 5 percent in extended trade after closing down 0.70 percent at $42.51 on the New York Stock Exchange and are continuing its downtrend since then.

Our Take

The high octane activity in the tech sector is making the sector increasingly susceptible to volatility and a bet full of worry for the investors. The shortening of product life due to rapid innovation and transition has been alarming to an extent that the very next month after its launch redundancy factor starts the countdown. In the wake of such uncertainty it would be best to avoid from buying or selling positions of the companies in the sector as of now especially if it is a tech big wig like Oracle. Let the wave of rapid technology transition settle and then we can take a better count of our position in the tech companies. Obviously the super cap companies are worth holding due to their time tested strength of fundamentals. So let us keep a close watch on the market in order to identify when the restlessness in the tech arena ends giving way to a stable investment ambience.