In a sign that global tech spending may be slowing, Oracle (ORCL) issued a quarterly financial report Tuesday that fell short of its own forecasts and significantly missed Wall Street expectations for the first time in three years.
Several analysts said the results suggest that recent economic upheaval in Europe and elsewhere is taking its toll.
Oracle is one of the world’s biggest sellers of database programs and other commercial software, along with high-end computer hardware. And because its fiscal quarter ends several weeks later than most of its competitors, analysts say the Redwood City company’s performance offers the most current view of overall tech spending.
“My sense is that things are slowing out there and Oracle is seeing this first,” said Brian Schwartz, a tech analyst with the investment firm ThinkEquity. “Buyers are getting more cautious.”
Among other factors, Oracle said, some big contracts weren’t signed in the last quarter because corporate customers, nervous about spending large sums, required their purchasing agents to get extra layers of approval from higher-ups before committing to significant deals.
Oracle executives took pains to assure financial analysts that they expect a stronger performance in the current quarter and that, in the words of Chief Financial Officer Safra Catz, “The fundamentals of the business remain strong.”
But there are other signs of problems in the tech industry. In a report Monday, Wells Fargo analysts said they are seeing “an increasing level of softening” in many companies’ budgets for tech products and services in the coming year.
“The tone has clearly deteriorated over the last 30 days as the fears of a global recession are permeating the IT decision-making process,” Wells Fargo analyst Jason Maynard reported, using an abbreviation for “information technology.”
To be sure, Oracle said its revenue and profit both increased during the latest quarter. The Redwood City company had sales of $8.8 billion in the period ending Nov. 30, up 2 percent from a year earlier. But Oracle had forecast sales to grow by 5 to 9 percent.
Net income rose 17 percent to $2.2 billion, which amounted to 43 cents a share. But Oracle had forecast earnings of 44 to 46 cents a share. Analysts polled by Thomson Reuters had predicted Oracle would report earnings of 45 cents a share, on revenue of $9.23 billion.
The company’s stock, which closed Tuesday at $29.17, fell 9 percent in late trading after the earnings report.
Oracle has not fallen significantly short of analysts’ expectations since the company’s second fiscal quarter of 2009, when the last recession was in full swing.
In the latest period, the company missed several of its own targets. It reported a 2 percent increase in revenue from new software licenses, which are a key indicator of future revenue from lucrative maintenance contracts, after forecasting an increase of 6 to 16 percent.
Hardware sales were down 14 percent; the company had predicted a decline of 5 percent. Oracle has been overhauling the computer hardware business that it acquired by buying Sun Microsystems last year. But it has lost market share in that business to such rivals as IBM, Hewlett-Packard (HPQ) and Dell.
Sales in the latest quarter suffered in part because Oracle introduced a new line of Sparc servers with more powerful processors, and some customers held off buying older models, President Mark Hurd told analysts on a conference call.
Oracle added 1,700 new sales agents in the past two quarters and the company now has “a big pipeline” of orders for the rest of the year, Hurd said.
Catz also said “a number” of big deals that were delayed in the past quarter have since been approved and will show up in the company’s results for the current period, which ends in March. She said no major deals have been canceled.
In her forecast for the current quarter, Catz said she expects sales of $8.9 billion to $9.25 billion, which is less than the $9.45 billion that analysts were predicting. She also forecast earnings per share of 55 to 58 cents, after excluding one-time charges; analysts had predicted 58 cents a share on the same basis.
Oracle executives exuded their usual confidence, however, in describing prospects for future growth. While the company is forecasting another drop in hardware revenue this quarter, CEO Larry Ellison said he expects the recent introduction of new, high-performance systems will create a turnaround in hardware sales by the end of next quarter.
Contact Brandon Bailey at 408-920-5022; follow him at Twitter.com/BrandonBailey
