Oracle gives cautious outlook for second quarter

PUBLISHED : Thursday, 19 September, 2013, 1:05pm
UPDATED : Thursday, 19 September, 2013, 1:05pm

Oracle forecast sales and profit for its second quarter that fell short of expectations as it continues to battle soft global IT demand and smaller rivals focused on providing software over the Internet.

Shares of the third largest software maker fell in after-hours trading on Wednesday.

Oracle predicted that sales of new software and subscriptions - a closely watched determinant of future revenue - would be in a range of between down 4 per cent and up 6 per cent in its fiscal second quarter.

It said it expects earnings per share, on a non-GAAP basis, of between 65 cents and 70 cents, compared with the average of analysts’ forecasts of 69 cents.

The company forecast revenue growth of between 1 and 4 per cent this quarter in constant dollars, translating to revenue of US$9.02 billion to US$9.29 billion and lagging the US$9.41 billion Wall Street had expected. It also gave the revenue guidance in US dollars, equivalent to a decline 1 per cent or an increase of as much as 2 per cent.

The forecasts came on a conference call with executives after the company released first-quarter numbers on Wednesday that briefly buoyed the stock.

Oracle reported higher first quarter earnings that beat estimates. Revenues rose 2 per cent, but missed estimates.

Oracle chief executive Larry Ellison missed the call while his sailing team, Oracle Team USA, battled on San Francisco Bay to hold onto the America’s Cup. The New Zealand team won Wednesday’s match, leaving it just one race away from taking the trophy.

Expectations had been muted after disappointing quarterly reports in March and June that led to sell offs in Oracle’s shares of almost 10 per cent in both of the following trading sessions. In the past three months, the stock has partly recovered and is now up about 1 per cent year-to-date.

Smaller, aggressive companies are offering competitive software and Internet-based products at prices that often undercut Oracle, whose strategy is to integrate software with its own high-end, expensive hardware for greater efficiency.

Still, many on Wall Street expect Oracle to eventually adapt to a more competitive and cloud-focused market. Ellison and his management team are known to excel in troubled times and Oracle has introduced its own offerings in the rapidly growing area.

“The softer guide for November will be disappointing to those investors that were looking for a more positive outlook from Oracle,” said FBR analyst Daniel Ives. “The company has growth challenges ahead as they transition to the cloud and their guidance reflects that dynamic.”

Barclays released a survey on Wednesday indicating that corporations expect flat spending on IT in the second half of this year, down from expectations of a slight increase when the survey was last taken in April.

The threat of a government shutdown next month in Washington, the most recent fiscal showdown between federal lawmakers, could potentially mute a pickup in enterprise tech spending.

“There’s a lot of news out there, whether it’s coming from our own government or Europe. That influences what we put as a backdrop for our forecasts,” Catz said.

Oracle said new software sales and Internet-based software subscriptions rose 4 per cent to US$1.7 billion in its fiscal first quarter which ended in Aug. 31, in line with its own forecasts. Analysts on average had expected about US$1.63 billion, Ives said.

The company had forecast that new software sales and subscriptions would be unchanged or rise as much as 8 per cent in the first quarter. Investors scrutinize new software sales because they generate high-margin, long-term maintenance contracts and are an important indicator of future profit.

Oracle said overall revenue rose 2 per cent to US$8.37 billion in the first quarter. That was a little below the US$8.479 billion analysts had expected on average, according to Thomson Reuters I/B/E/S.

Net income rose to US$2.19 billion, or 47 cents per share, from US$2.03 billion, or 41 cents per share, in the year-ago quarter. On an adjusted basis, Oracle earned 59 cents per share.

Analysts expected first-quarter adjusted earnings per share of 56 cents, down from an average estimate of 58 cents two months ago.

Revenue from Oracle’s hardware systems products, which it acquired through the US$5.6 billion purchase of Sun Microsystems in 2010, fell 14 per cent to US$669 million.

Oracle had forecast that hardware product revenue for the August quarter would decline as much as 6 per cent or grow as much as 2 per cent.