Oracle's Q4 on tap: Will product upgrade cycle follow?

Oracle's 12c database with in-memory option, cloud offerings and applications have analysts upbeat -- for now.
Written by Larry Dignan, Contributor

Oracle's fiscal fourth quarter results are likely to be in line with expectations, but most analysts are looking forward to the quarters to come and what is expected to be a solid product cycle.

If that product cycle doesn't pay off, Oracle will be viewed in an entirely different light. The Database 12c in-memory option launch as well as solidifying hardware sales and application upgrades have many analysts upbeat.

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Wall Street is expecting Oracle to report fourth quarter earnings Thursday of 95 cents a share on revenue of $11.48 billion.

But here's the catch: Oracle has made a habit of reporting disappointing revenue. Oracle's revenue has been light four out of the last five quarters relative to expectations.

Patrick Walravens, an analyst at JMP Securities, said:

Generally speaking, our checks on hardware/engineered systems are positive, while our checks on the technology and applications business are more negative, with very negative checks regarding business intelligence/enterprise performance management.

Like previous quarters, Oracle's earnings conference call is likely to be upbeat. CEO Larry Ellison and the gang have had a common mantra: You just wait 'til our product cycle kicks in.

Oracle's 12c in-memory option is the linchpin of the entire product cycle. Oracle needs in memory, which allows for faster data processing, to fend off rivals such as SAP's HANA and keep its customers. What's unclear is whether 12c adds customers or just keeps the base in the fold to keep feeding maintenance revenue.

The other big question for Oracle is its applications upgrade cycle and the migration of customers to the cloud. Stifel Nicolaus analyst Brad Reback noted:

We believe the demand environment remains stable, albeit with a growing focus on Oracle's portfolio of cloud-based solutions. Given this increased cloud focus, we believe Fusion and acquired assets posted another quarter of healthy double-digit growth, although we expect overall license revenue growth to remain somewhat muted (mid-single digits). On the hardware front, we also believe revenue stabilization continues, with ongoing momentum for Oracle's "Exa" line of engineered systems offsetting weakness in legacy low-end offerings.

Overall, Oracle will ultimately have to back up its bluster with top line growth. Oracle's quarters ahead will have to prove that there's a robust product cycle in the offing. Among the key questions:

  • Can Oracle migrate its installed base to the cloud? FBR analyst Daniel Ives said: "The company's cloud strategy remains a 'prove me' situation in the early innings of taking shape with Oracle's enterprise cloud applications (ERP, HCM, customer experience, etc.)."
  • Will the 12c in-memory option be widely adopted and keep customers in the fold?
  • Does Oracle's engineered systems business evolve to offset concerns about license and maintenance revenue in the future?
  • Will Oracle need flawless execution to manage these various technology shifts?
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