Oracle's Q2 falls short, hardware revenue slides, outlook light

Oracle's Q2 falls short, hardware revenue slides, outlook light

Summary: Oracle misfired on new software license growth as hardware revenue fell 14 percent from a year ago.

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Oracle's fiscal second quarter struck out on both earnings and revenue as the company continues to see hardware revenue slide.

The company reported second quarter earnings of $2.2 billion, or 43 cents a share, on revenue of $8.8 billion. Non-GAAP earnings were 54 cents a share, three cents short of Wall Street estimates.

Wall Street is expecting Oracle to report fiscal second quarter earnings of 57 cents a share on revenue of $9.23 billion.

In a statement, Oracle talked up the company's non-GAAP operating margins and noted operating cash flow over the last year was $13.1 billion.

The problem, however, is that Oracle saw new software license revenue gain only 2 percent in the second quarter from a year ago to $2 billion. Updates and support revenue was up 8 percent to $4 billion. Hardware systems revenue fell 14 percent from a year ago. to $953 million in the second quarter. In addition, Oracle couldn't blame currency fluctuations either---the growth rates in constant currencies mirrored the actual results.

Analysts were looking for a more modest decline, say 3 percent, in Oracle's hardware sales. Analysts also noted that Oracle was retooling its salesforce to sell hardware systems. Also see: Oracle's Q2: Six themes to watch

On a conference call, Oracle CFO Safra Catz said deals fell apart at the end of the second quarter. She said:

This quarter new software license revenue was $2 billion, up 3% in constant currency or 2% in US dollars, building off the 21% increase from last year. This was a result of a few things. First, in the last few weeks, really in the last few days of our November quarter, we saw an increase in last minute additional approvals required for previously scheduled and expected deals. As a result, we're putting in place better deal management so that we have the time and the approvals necessary to take this into account.

Catz said that third quarter non-GAAP earnings will be 56 cents a share to 59 cents a share. Wall Street was expecting 58 cents a share. Total revenue growth will be 4 percent to 7 percent in the third quarter.

Reaction in afterhours trading was swift.

Oracle executives said the company was ramping in the first half for a better fiscal second half. Mark Hurd, Oracle president, said:

We have expanded our worldwide sales capacity by adding over 1,700 sales professionals in the first half of this fiscal year. We believe that this increase in our field organization combined with innovative new products like Fusion Cloud ERP and Cloud CRM will enable solid organic growth in the second half of this year.

CEO Larry Ellison also talked up the company’s Exadata and Exalogic line. The problem is that those lines aren't growing fast enough to offset declines in the hardware business. Ellison touted customer wins and Oracle's hardware pipelines while knocking IBM. However, there's a disconnect between Ellison's talk and Oracle's hardware figures.

By the numbers:

  • Oracle will buy back $5 billion in common stock.
  • R&D spending in the second quarter was $1.1 billion, down 2 percent from a year ago, but still 13 percent of revenue.
  • Oracle had 111,298 employees at the end of the quarter.
  • Americas revenue was $4.53 billion. Middle East and Africa revenue was $2.76 billion and Asia Pacific sales were $1.5 billion.
  • Database and middleware revenue in the quarter was $4.19 billion, up from $3.83 billion a year ago.
  • Applications revenue in the quarter was $1.85 billion, up from $1.78 billion a year ago. New software license growth for applications was down 2 percent from a year ago.

Topics: Hardware, Banking, Enterprise Software, Oracle

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13 comments
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  • RE: Oracle's Q2 falls short, hardware revenue slides

    No worries, they have a couple of lawsuits they hope to materialize on next year. If the judge does not agree, then really, they have no clue what else to do.
    tatiGmail
    • Commercialize (instead of materialize)

      @tatiGmail Did you mean "No worries, they have a couple of lawsuits they hope to COMMERCIALIZE on next year" ?
      RelaxWalk
  • Of course they fell short

    you have Google giving away Oracle's code for free in Android
    William Farrel
    • RE: Oracle's Q2 falls short, hardware revenue slides

      @William Farrel
      that's FUD! The people are punishing oracle for messing with FOSS.
      Next, the other two members of the axis of evil software will feel the rage of the people.
      The Linux Geek
    • RE: Oracle's Q2 falls short, hardware revenue slides

      @William Farrel

      +1
      gribittmep
  • Of course they fell short

    you have Google giving away Oracle's code for free in Android
    William Farrel
    • RE: Oracle's Q2 falls short, hardware revenue slides

      @William Farrel

      That's not a fact, that's your opinion, but more than likely, it's just trolling from you.
      DonRupertBitByte
      • RE: Oracle's Q2 falls short, hardware revenue slides

        @DonRupertBitByte
        He also happens to be a MS fanboy so you can see why he has a natural bias to patent trolls.
        anono
  • RE: Oracle's Q2 falls short, hardware revenue slides

    That's what happens when you try to shove expensive licenses down people's throats: They throw up.
    dhmccoy
  • RE: Oracle's Q2 falls short, hardware revenue slides

    Everyone is dumping Slowaris for Linux and Windows servers.
    panoslondon1
    • RE: Oracle's Q2 falls short, hardware revenue slides

      @panoslondon1

      I think its also fallout from the itanium spat, no enterprise customer is going to want to reward Oracle for that sort of behavior
      the.nameless.drifter
  • RE: Oracle's Q2 falls short, hardware revenue slides

    Everyone is dumping Slowaris for Linux and Windows servers.
    panoslondon1
  • RE: Oracle's Q2 falls short, hardware revenue slides

    Oracle is dead .
    vivianvein