Oracle's first quarter earnings are expected to be in line with expectations, but the big question is whether there will be signs of a Fusion application upgrade cycle.
In various previews of Oracle's earnings Thursday, analysts ranged from ho-hum to downright enthusiasm about Fusion apps and an upgrade cycle. Predictions were decidedly mixed about Oracle's hardware mojo.
Wall Street expects Oracle to report first quarter earnings of 53 cents a share on revenue of $8.42 billion.
One of the more interesting items in Oracle's quarter will be Fusion licensing revenue if it's broken out. Oracle's Open World conference is just days away, but recent years have focused way too much on hardware. The reality is most of the Open World attendees are database or app customers.
Adam Holt, an analyst at Morgan Stanley, falls in the optimistic camp on Fusion. In a research note, Holt said:
Our work suggests Oracle's first quarter should benefit from a) last year’s sales capacity investments (up >35% YoY) becoming productive, b) quotas going out earlier than normal and low close rate assumptions and c) the Fusion Apps cycle beginnings to ramp.
That latter point is the most notable (we already know Oracle can sell a lot of stuff).
Holt didn't back up his Fusion bullishness with much, but expects first quarter applications revenue to be $565 million, up 32 percent from a year ago. Some of that growth will be fueled by software as a service acquisitions RightNow and Taleo.
Other analysts were also upbeat about Fusion.
Oppenheimer analyst Brian Schwartz said:
Our field checks suggest that the Fusion Applications products are starting to improve both from a reputational and functionality standpoint. Prior checks have suggested early adopters have struggled with some temporary issues around data integration with third-party systems; however, more recent checks have indicated these issues have been corrected through fixes. We think the word is starting to spread that the products have improved since introduction last year, which could release a wave of adoption from the thousands of customers who we believe have been in a holding pattern of not wanting to refresh their applications with the legacy technologies but also waiting until the newer Fusion technologies improved. We think the improved feedback regarding the technologies (that we are receiving from our large system integrator checks) is likely starting to spread throughout the customer base, which could finally move these customers off the fence and begin refreshing their legacy, Oracle applications with the Fusion applications. This trend would generate not only improving software sales but also positive maintenance trends as a refresh cycle would undoubtedly lead to complementary applications and management tools being bought.
Jefferies analyst Ross MacMillan projected Oracle's application sales to be merely ok based on partner feedback. MacMillan said integrated system sales could surprise.
Partners commented on an improvement in Exadata and Oracle Database Appliance (ODA) activity during F1Q13. We heard of solid Exadata expansion business and about strong new customer interest. Of note, partners expect Oracle to unveil the next generation of Exadata systems (X3) at Oracle Open World, which will include the latest hardware components and have improved functionality for OLTP workloads; ORCL is also planning to formally launch an eighth rack system. Regarding ODA, we heard that the appliance has gotten increasing levels of interest and adoption from large enterprises for divisional deployments or other specific use cases.
The overall theme from analysts is that Oracle's Fusion apps may not show momentum in the first quarter, but the products have improved since launch. If Fusion doesn't take center stage yet on earnings calls it's not too far from getting callouts.