Oracle's 2Q to provide snapshot of tech spending
SAN FRANCISCO—Oracle's latest quarterly results will give investors a better sense on how technology spending is holding up heading into the new year.
WHAT TO WATCH FOR: The report, due out after the stock market closes Tuesday, is expected to showcase Oracle's strengths and weaknesses. Look for double-digit growth in the sales of the company's business software products and a tepid performance from the computer hardware business that Oracle Corp. has been trying to expand since last year's $7.3 billion acquisition of fallen Silicon Valley star Sun Microsystems.
The company's gains in new software licenses are usually a good measuring stick. Besides bringing in money during the quarter the deals are made, the sales open a lucrative vein of future revenue for product maintenance and upgrades.
Nomura Securities analyst Rick Sherlund says he expects Oracle's revenue from new software license to increase 14 percent from the same time last year. Management had projected an increase of 6 percent to 16 percent for the September-November period that covers Oracle's fiscal second quarter. Hardware revenue, on the other hand, could be down by as much as 5 percent, based on Oracle's own guidance.
The software division accounts for about two-thirds of Oracle's revenue, so its performance typically has a bigger influence on Oracle's stock price, which has fallen by about 20 percent during the past seven months. The shares have been hovering between $29 and $31 most of this month, down from their 52-week of $36.50 reached in early May.
Unless there is a big surprise in the most recent quarter, investors probably will focus on Oracle's outlook for the current quarter ending in February. The forecast will provide a snapshot on how Europe's financial crisis and cutbacks among financially strapped government agencies in the U.S. are likely to affect technology-spending budgets next year. Nearly one-third of Oracle's revenue comes from a region spanning Europe, Africa and the Middle East.
Given the uncertainties, it won't be a surprise if Oracle strikes a cautious tone in its fiscal third-quarter projections.
WHY IT MATTERS: Oracle is the biggest maker of database software that helps other companies organize information. It also sells many of the applications that help companies do everything from process their payroll to manage their relationships with their customers and partners.
As it has become more prosperous, Oracle has been spreading the wealth to expand into new markets. It has completed more than 75 acquisitions during the past eight years, including several multibillion deals. Its most recent big prey is RightNow Technologies Inc., which it agreed to buy for $1.5 billion in October.
WHAT'S EXPECTED: Analysts polled by FactSet expect earnings of 57 cents per share, excluding charges for past acquisitions and other costs, on revenue of $9.23 billion.
LAST YEAR'S QUARTER: In its fiscal second quarter last year, Oracle earned 51 cents per share, excluding certain items, on revenue of $8.58 billion.