Oracle Navigating Turbulent Waters?

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Oracle Navigating Turbulent Waters?

   IStock_000004630586XSmallOracle (ORCL) is often the bellwether for the software industry so it is important to keep tabs on how well it is performing and what its business forecasts are.

In the rearview mirror

The sky is falling, the sky is falling! If you read, listen or watch any major media outlet all you hear is about how we are going to fall into a financial precipice. Before Oracle’s quarterly results announcement many analysts were figuring that Oracle’s results would reveal it had been hit by the economic downturn or recession. But, in the historically slow summer quarter (for tech in general), Oracle announced solid results.

Revenue rose to $5.33 billion from $4.53 billion for its Q1 ending August 31st compared to year earlier results. Quarterly profit rose 28%.  New software license revenue, a key industry metric, increased 14% overall. The results for this metric were mixed for the underlying businesses. Database sales were up an impressive 27%, however, business application sales were down 12%.  The app sales decline most likely was from the economic climate (can’t avoid the economy) and may the canary in the coal mine for other products and services in the future.

Other critical metrics for financial analysts is what the company says regarding future growth. Oracle executives predicted overall sales growth of 12-15% and increases in new software license sales between 5% to 15% (a wide range!) The estimates may or may not come true and analysts may or may not have faith in them but with executives making these predictions at least investors did not panic.

Future Results

The debate in the industry is how much of an impact will the economic downturn have on Oracle.

One of the biggest points of contention is how much of Oracle’s business is derived from the beleaguered financial services market? Oracle’s CFO, Safra Catz, stated that Oracle exposure to the banking industry was only “in the low single digits.” IDC estimates that 12% of Oracle’s business application and database revenue came from banks with sales to investment and security firms being 20& of its revenue.

Without knowing how each party defines sales what firms are included in these industry segments it is tough to compare numbers. Financial services firms are significant purchasers of tech especially related to data. It would be surprising if Oracle’s exposure to that industry was only in the low single digits given that it is the market leader or one of leaders in so many of the software and services categories purchased by financial service firms.

It is important to note that despite the daily headlines many financial service firms are not going bankrupt. And there is merger and acquisition (M&A) activities that are being generated as some of the troubled firms get acquired by healthy firms.  However, cost reduction and cost containment are the order of the day across this industry and the malaise has spread into other industries.

No escape?

Of course no one really knows how bad the economic downturn will be. If it gets severe enough both in the United States and worldwide it is highly unlikely any of the software titans will go unscathed.

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