Oracle Corp.
(
ORCL
) is set to release its second quarter 2012 results on Dec 20,
2011, after the closing bell. In the run up to the earnings
results, no substantial movement in analysts' estimates for the
quarter was noticed.
Prior Quarter Recap
Oracle reported modest first quarter 2012 results, with earnings
of 46 cents per share beating the Zacks Consensus Estimate by two
cents. Total revenue in the reported quarter increased 10.7% year
over year to $8.40 billion. Total revenue was slightly above the
Zacks Consensus Estimate of $8.34 billion.
The increase in earnings was attributable to higher new software
license sales, which grew for the eighth consecutive quarter.
For the full report please read:
Oracle Beats on Software Sales
The Quarter Ahead
For the current quarter, Oracle expects non-GAAP earnings in the
range of 56 cents to 58 cents per share. Second quarter 2012
earnings guidance, which was provided at the time of the first
quarter earnings results, was significantly higher than the
year-ago level of 49 cents per share as well as the Zacks Consensus
Estimate of 54 cents.
Non-GAAP total revenue growth is expected to range from 4.0% to
8.0%. New software license revenue growth is expected in the 6.0%
to 16.0% range. Hardware product revenue growth is expected to be
flat to down 5.0% in the second quarter. The Zacks Consensus
Estimate projects revenues of $9.23 billion for the second
quarter.
Estimates Trend Revision
For the quarter, only one out of the 17 analysts covering the
stock lowered estimates in the last 30 days. Over the same period,
no upward estimate revision was noticed. Therefore, the Zacks
Consensus Estimate for the quarter stayed at 55 cents. Analysts'
estimates range from 54 cents to 58 cents.
Analysts covering the stock expect the company to meet
expectations on the back of higher license revenues. However,
unfavorable foreign exchange rates may act as a headwind.
Additionally, the analysts are particularly concerned about the
company's hardware business that has witnessed declines in the
previous few quarters. In all, analysts expect the company to
perform modestly, as macro-economic concerns and weaker than
expected IT spending keep its performance in check.
Our Take
Oracle has exceeded estimates in the preceding four quarters.
The average surprise for the period is a positive 6.99%, and we
think the trend indicates another positive earnings surprise from
the company.
We believe that Oracle has a strong product pipeline, which will
drive broad-based top-line growth going forward. Moreover, strong
adoption of Exadata, Exalogic, the core SPARC product line and
fusion systems will drive incremental top-line growth going
forward. We expect this strong product portfolio to provide Oracle
a competitive edge over
International Business Machines Corp. (
IBM
)
and
SAP AG (
SAP
)
going forward.
Oracle is exiting the low-margin third-party hardware sales
business, which will drive its margin going forward. The company
remains focused on selling SUN products at high margins, which will
drive operating profit going forward.
However, lower hardware volume will remain a concern in the near
term. We believe Oracle will take at-least another three to four
quarters to achieve top-line growth in the hardware segment. This
is particularly due to the uncertain macro environment in both the
Americas and EMEA.
Oracle is also expected to face strong competition from
Hewlett Packard Co. (
HPQ
)
, IBM,
VMware Inc.
(
VMW
)
and
Red Hat Inc. (
RHT
)
in the cloud computing market that may hurt its profitability over
the long term.
We maintain a long-term (6-12 months) Neutral recommendation on
Oracle shares. Currently, Oracle has a Zacks #3 Rank, which implies
a Hold rating on a short-term basis.
HEWLETT PACKARD (
HPQ
): Free Stock Analysis Report
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ORACLE CORP (
ORCL
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RHT
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SAP
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