Oracle Q2 mixed; Ellison defends Sun acquisition

Oracle reported better-than-expected second quarter earnings, revenue that was lighter than estimates and hardware system product sales that fell 23 percent from a year ago.

In other words, Oracle's quarter was a mixed bag (preview).

Oracle reported second quarter earnings of $2.6 billion, or 53 cents a share, on revenue of $9.1 billion, up 3 percent from a year ago. Non-GAAP earnings were 64 cents a share.

Wall Street was expecting Oracle to report second quarter earnings of 61 cents a share on revenue of $9.02 billion.

New license and cloud revenue was up 17 percent in the second quarter from a year ago. License and support revenue was up 7 percent from a year ago. But hardware systems products saw a revenue plunge of 23 percent.

As for the outlook, Oracle said non-GAAP EPS is expected to fall between 64 and 68 cents a share, up from 62 cents last year. Revenue is expected to increase by 1 percent to 5 percent,

Wall Street is expecting non-GAAP earnings of 66 cents a share in the third quarter on revenue of $9.45 billion.

Adding the caveat that the guidance rests upon an assumed non-GAAP tax rate of 24.5 percent, Catz remarked, "Of course, it might end up being a bit different."

Oracle added that a strong U.S. dollar clipped second quarter earnings by a penny a share.

In a statement, Safra Catz, president and CFO of Oracle, said that operating margins on a non-GAAP basis were 47 percent due to engineered systems and software sales.

Meanwhile, Mark Hurd, president of Oracle, cited momentum in cloud offerings and subscriptions.

On the hardware front, Oracle's business on the topline continued to struggle. Nevertheless, CEO Larry Ellison defended the acquisition of Sun. He said:

Sun has proven to be one of the most strategic and profitable acquisitions we have ever made. Sun technology enabled Oracle to become a leader in the highly profitable engineered system segment of the hardware business. I believe that products like Exadata and the SPARC SuperCluster will not only continue to drive improved profitability in our hardware business, by the end of this fiscal year, they will also drive growth in our hardware business.

The challenge for Oracle is to find the bottom in its hardware business and grow revenue in future quarters. Ellison added on a conference call that the hardware business should grow in Oracle's fourth quarter. He said:

We are just about finished with the downsizing phase and the transformation of that business. We're about to start growing our hardware business. In Q3, we'll be turning the corner and in Q4 we expect top line growth to go along with continual continually improving margin. 

Other nuggets from the conference call:

• Hurd cited Exadata wins at Facebook, China Mobile and Samsung as well as Exalogic wins at Walmart and Vodafone. 
• Oracle said it landed HCM and CRM wins at Xerox, Whirlpool and United Airlines. 
• Europe demand was solid. 
• The company sold more than 700 engineered systems in the quarter. 
• Ellison targeted Workday and said:

We're beating Workday. We're beating them in North America and we're almost shutting them out in Europe. It's very, very exciting. We also are getting good wins against Salesforce with our Fusion sales automation product.

By the numbers:

• Oracle ended the quarter with 117,229 employees.
• Revenue in the Americas in the second quarter was $4.78 billion.
• EMEA sales were $2.7 billion and Asia-Pacific revenue was $1.6 billion.