Oracle first quarter expected to be mixed, but 'not a disaster'

Oracle steps up to the earnings plate Thursday and could face a rough crowd. Wall Street is battered and has no tolerance for any earnings--even decent reports. No matter what Oracle says every word will be parsed to gauge the demand outlook.

Adam Holt, analyst at Morgan Stanley, sums up expectations for Oracle's quarter: "Looking for a mixed quarter, but not a disaster."

How's that for high expectations? Oracle (all resources) is expected to report first quarter earnings of 27 cents a share excluding items on revenue of $5.42 billion, according to Thomson Reuters. Across the board analysts are seeing mixed signals from Oracle. Business intelligence, middleware and parts of Oracle's database business are expected to do well. Applications sales and European growth may be more dicey. Cross Research analyst Richard Williams reckons that Oracle had a rough close to the quarter based on channel checks. Williams notes that "projects that are underway probably get completed, but new ones may be tougher to get started." Other analysts concluded the same thing.

For instance, Global Equities Research analyst Trip Chowdhry notes that Oracle's quarter "barely closed on plan" and "weakness is starting to show up in almost every vertical." Chowdhry says projects are being cancelled by technology, retail and financial services customers with telecom companies hanging in.

Oracle entered its first quarter with a strong backlog so the quarter isn't in that much doubt. The big question: What's the second quarter prognosis? Wall Street is expecting Oracle to report second quarter earnings of 35 cents a share excluding items on revenue of $6.23 billion.

Amid the key items to watch:

• License revenue and more specifically applications licenses. Holt is projecting revenue for the first quarter to hit about $1.22 billion, up 14 percent. Application license revenue is expected to be about $402 million, up 7 percent from a year ago, with technology licenses accounting for the remainder of that $1.22 billion total.
• Total revenue. Revenue is expected to top $5.4 million, according to Thomson Reuters.
• Operating margins. Despite the integration of BEA Systems, Oracle is expected to boost margins. Those margin gains should enable Oracle to at least hit estimates.
• Where's the next acquisition? Oracle typically makes a big acquisition every three to four quarters or so. It's about time for Oracle to buy another software vendor.
• The currency impact. The dollar has strengthened in recent weeks and is expected to be a drag on Oracle's results.
• U.S. government spending. The government is a big customer of Oracle, but spending is always in doubt when there's a presidential campaign underway.
• How does Oracle navigate the financial services sector? Financial services are one of Oracle's top verticals. The problem: Financial firms are merging or being taken over by the government. Are these companies really going to be in the mood for big implementations?