Oracle's Q1: Low expectations, wild cards abound

Hardware sales, license revenue and the IT spending backdrop are significant unknowns for Oracle's historically weak first quarter.

Oracle's first quarter results are expected to be on target with low expectations, but hardware sales, cloud products and IT spending remain significant wild cards.

The first quarter is Oracle's weakest every year. The catch is that Oracle's last two quarters didn't impress either. As a result, analysts aren't expecting much, but Oracle probably set expectations low enough to deliver a decent quarter.

Wall Street is expecting Oracle to report first quarter earnings of 56 cents a share on revenue of $8.48 billion.

Among the key items to watch:

Hardware sales are expected to be weak (again). Wells Fargo analyst Jason Maynard said "we don’t expect much improvement in hardware and are forecasting revenue growth to decline once again." Server shipments were down in the quarter and engineered systems revenue isn't offsetting low margin products. Maynard expects hardware product revenue of $734 million, down 6 percent from a year ago. Other analysts are more optimistic and see a decline of about 3 percent for hardware product sales.

Customer delays due to Oracle partnerships with Microsoft and Salesforce . Macquarie analyst Brad Zelnick noted that customers may have held back to see what Oracle's latest strategic alliances mean for them. "Relationships with Microsoft and Salesforce appear promising but have delayed some purchasing decisions as customers evaluate these options. Fundamentally, we do not expect much upside to Oracle’s F1Q performance," said Zelnick.

License revenue may have stabilized. Stifel Nicolaus analyst Brad Reback said that he's projecting license revenue of at least $1.63 billion, up 2.5 percent from a year ago. Reback said improving sales productivity is likely to improve results. However, Oracle has lost sales talent recently. Zelnick tracked Oracle's organic license growth over recent quarters.

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IT spending. Maynard said that the IT spending backdrop has improved since May and that reality may have helped Oracle close the quarter on a good note. However, Piper Jaffray analyst Mark Murphy's channel survey found that 41 Oracle partners were 1.7 percent below their forecasts. "The survey results suggest Oracle continues to run in a lower gear," said Murphy.

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