Oracle Corp’s better-than-expected results and quarterly revenue outlook spurred cautious hope on Wednesday that the software maker is on track to revive growth curtailed this year by slow IT spending.<\/p>\n
The No. 2 software maker posted fiscal-second-quarter results that exceeded expectations, while its outlook for third-quarter earnings was in line with Wall Street estimates.<\/p>\n
“They seem to be getting their act together. We need more data but this was a good quarter,” said Bernstein analyst Mark Moerdler, who rates Oracle’s stock “market perform”. “It’s a work in progress, but it’s in a better position than it has been.”<\/p>\n
Smaller, aggressive companies like Salesforce.com and Workday have been 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.<\/p>\n
In response, the four-decade old company has been rolling out its own cloud-based products while President Mark Hurd has hired new sales people and created sales teams aimed at going after specific cloud competitors.<\/p>\n
“That’s all they think about every day, is competing against every Workday prospect,” Chief Executive Officer Larry Ellison said on a conference call with analysts. “We have another team of people that compete against Salesforce.”<\/p>\n
With Oracle’s stock up about 4 percent year to date compared to a 27 percent increase in the S&P 500, a majority of shareholders have expressed disapproval of Ellison’s pay package, which critics say is too generous.<\/p>\n
Next year may be tough for companies selling IT equipment to governments and companies.<\/p>\n
Global spending on servers, storage and enterprise networks is likely to grow 4 percent next year, after increasing just 1 percent in 2013, according to market research firm IDC.<\/p>\n
Oracle plans to compete aggressively against rivals offering cloud-based technology infrastructure services, like Amazon.com and Rackspace, Ellison said.<\/p>\n
“We’re going to be cost competitive and price competitive at the infrastructure level while being highly differentiated at both the platform level and the application level,” he said.<\/p>\n
Chief Financial Officer Safra Catz said that current-quarter revenue would grow between 3 percent and 7 percent in constant dollars, equivalent to between $9.2 billion and $9.6 billion. She said she expects current quarter EPS between 68 cents and 72 cents.<\/p>\n
Analysts expected revenue of $9.351 billion and EPS of 70 cents for the current quarter, according to Thomson Reuters I\/B\/E\/S.<\/p>\n
“Given what we’ve been seeing in the last year I would call this a relief. Expectations were pretty negative going in,” said FBR analyst Daniel Ives. “All the ingredients or the recipes for success are out there, in terms of a ramped-up sales force and cloud business, and the key now is execution on their strategy.”<\/p>\n
For the second quarter, Oracle said overall revenue rose 2 percent to $9.3 billion. That was above the $9.2 billion analysts had expected on average.<\/p>\n
Net income fell to $2.6 billion, down 1 percent. GAP EPS rose 5 percent to 56 cents.<\/p>\n
On an adjusted basis, Oracle earned 69 cents per share. Analysts expected second-quarter adjusted earnings per share of 67 cents.<\/p>\n
The company reported a 1 percent decrease in new software sales and Internet-based software subscriptions for the quarter.<\/p>\n
Investors scrutinize new software sales because they generate high-margin, long-term maintenance contracts and are an important indicator of future profit.<\/p>\n
For the current quarter, new software and sales and subscriptions will grow between 2 percent and 12 percent, Catz said.<\/p>\n
Revenue from Oracle’s hardware systems products, which it acquired through the $5.6 billion purchase of Sun Microsystems in 2010, fell 3 percent to $714 million in the second quarter.<\/p>\n
Oracle’s hardware revenue has fallen since it bought Sun, with Ellison saying much of that decline is due to phasing out older low-margin systems in favor Oracle’s premium hardware.<\/p>\n
For the current quarter, hardware product revenue will be in a range between down 1 percent and up 9 percent, the company said.<\/p>\n
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