CORRECT(12/21): Oracle's Weak 2Q Raises Fears About IT Spending Slowdown
December 22 2011 - 2:34PM
Dow Jones News
Oracle Corp.'s (ORCL) weak earnings results are raising
questions about enterprise spending on technology and hitting
shares across the sector, with jittery investors questioning how
resilient the industry is.
Oracle, one of the technology industry's bellwethers, late
Tuesday reported fiscal second-quarter results that fell short of
expectations. The business-software giant said delayed customer
purchases caused sales in its core software business to grow less
than expected and revenue in its newer hardware division to decline
more than it had feared.
The report is the latest signal that economic uncertainty could
be hurting corporate demand for high-tech products. Software
provider Red Hat Inc. (RHT) earlier this week said revenue rose
only in line with expectations rather than topping estimates as it
had in previous quarters. And storage provider NetApp Inc. (NTAP)
last month said some of its biggest customers were taking a pause
in light of macroeconomic worries.
"If ORCL is struggling to hit its goals due to macro forces,
most others probably are struggling too," J.P. Morgan analyst John
DiFucci said. "This may be just the beginning of a long list of IT
companies that struggle over the next quarter or more."
Oracle shares, off 21% over the past 12 months, recently dropped
14% to $25.15.
The news also dragged down shares of fellow tech giants such as
SAP AG (SAP, SAP.XE), down 6.2% to $52.27, and International
Business Machines Corp. (IBM), down 3.7% to $180.30. Data
warehousing provider Teradata Corp. (TDC) lost 11% to $44.86 as
Oppenheimer cut its rating to perform from outperform.
Enterprise software companies were among the biggest decliners,
with Salesforce.com Inc. (CRM) losing 7.9% to $96.01, and Tibco
Software Inc. (TIBX) tumbling 13% to $20.41. Red Hat and Check
Point Software Technologies Ltd. (CHKP) slid about 5%, and
virtualization software companies VMware Inc. (VMW) and Citrix
Systems Inc. (CTXS) both lost more than 7%
CommVault Systems Inc. (CVLT), which providers storage software,
tumbled 16% to $38.86. Storage hardware companies also slid, with
EMC Corp. (EMC) and NetApp Inc. (NTAP) down about 4%.
While Oracle's results were weak across the board, ThinkEquity
analyst Rajesh Ghai said many data center companies, including
storage providers, are likely to remain somewhat immune to a
slowdown as he considers their products "relatively
non-discretionary." Even if storage growth slows near-term, that
could result in pent-up demand, he said.
And other analysts said some of Oracle's weakness was likely
specific to the company. Canaccord Genuity analyst Richard Davis,
who cut his rating on Oracle to hold from buy, said Oracle missed
expectations because some buyers waited for a new hardware upgrade
and because Oracle is "behind the curve" in cloud applications in
its software business.
Oracle once pooh-poohed cloud computing, which allows users to
access data and software remotely from Internet-connected
computers, but it has been more active in the area of late. Oracle
in the fall said it would begin offering its full suite of software
as a cloud service, and it also said it was buying customer-service
software maker RightNow Technologies Inc. (RNOW) for $1.43 billion
in cash.
"The reality is that, in the software world, cloud wins,"
Canaccord's Davis said. "You can argue about when everything will
be instantly scalable public cloud, but the fact is that Oracle's
Fusion applications are a pale comparison, functionality-wise, to
the more advanced versions available from smaller specialist
firms."
-By Shara Tibken, Dow Jones Newswires; 212-416-2189;
shara.tibken@dowjones.com
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