) reported earnings (including stock-based compensation of 4
cents per share) of 60 cents per share in the second quarter of
2013, which beat the Zacks Consensus Estimate by a couple of
Total revenue increased 3.4% year over year to $9.11 billion.
Revenue was well ahead of the consensus mark and was within
management's guided range of 0.0% to 4.0% growth forecast.
The year-over-year upside in revenue was primarily driven by
strong new software license sales. Software revenue climbed 10.3%
year over year to $6.67 billion, primarily driven by 17.2% jump
in new software license sales (beating management's guided range
of 5.0% to 15.0%) and 6.7% increase in software license update
and product support revenues.
New software licenses and cloud software subscription sales
were particularly strong in Americas, where revenue surged 22.0%
year over year, followed by Asia Pacific, where revenue grew
13.0% year over year. Europe, Middle East & Africa revenue
was up 10% year over year in the second quarter.
Cloud revenue was $230.0 million in the quarter. The company
added a number of new customers in both customer relationship
management ("CRM") and human capital management ("HCM")
portfolios. These include
Abercrombie & Fitch (
T. Rowe Price (
, United Airlines, U.S. Bancorp,
to name a few.
Hardware declined 16.6% year over year to $1.32 billion,
primarily due to a massive 23.0% plunge in hardware systems
products and 6.9% decline in hardware systems support
Hardware systems product sales declined in all the regions
with Europe, Middle East & Africa down a massive 27%,
followed by Americas, where revenue declined 25% year over year.
Revenue declined 10.0% in the Asia-Pacific region.
Engineered systems (Exadata, Exalogic, Exalytics) continued to
grow at a significant rate with more than 70% sequential growth
in unit bookings. Oracle sold more than 700 engineered systems to
customers that include names such as China Mobile,
), Samsung and Time Warner Cable in the reported quarter.
Services revenue declined 4.7% year over year to $1.12 billion
in the reported quarter.
Region wise, Americas (52.6% of total revenue) increased 5.6%
year over year to $4.79 billion. Europe, Middle East & Africa
(29.7% of total revenue) declined 2.0% year over year to $2.70
billion. Asia Pacific (17.7% of total revenue) jumped 6.8% year
over year to $1.61 billion.
Total operating expenses remained flat from the comparable
prior-year quarter at $5.03 billion. All expense items, except
research & development expense ("R&D") & sales &
marketing ("S&M"), declined significantly in the quarter,
reflecting stringent cost control. From the year-ago quarter,
R&D and S&M expenses surged 8.8% and 4.5%, respectively.
Services remained flat at $930.0 million in the reported
Operating income (excluding one-time items of $613.0 million
but including stock-based compensation expenses of $188.0
million) soared 8.1% year over year to $4.08 billion. Operating
margin expanded 190 basis points ("bps") primarily attributable
to lower operating expenses.
Net income was $3.12 billion or 64 cents per share compared
with $2.78 billion or 54 cents in the year-ago period. Earnings
were slightly better than the company's guided range of 59 cents
to 63 cents per share.
Oracle exited the second quarter with cash and marketable
securities of $33.70 billion compared with $31.61 billion at the
end of the previous quarter. GAAP operating cash flow was $13.53
billion compared with $13.99 billion in the previous quarter.
Free cash flow of $12.82 billion ($13.37 billion in the
previous quarter) was impressive providing ample liquidity to
Oracle in order to pursue acquisitions, sustain dividend payments
and further share repurchase. Oracle bought back 96.1 million
shares for $3.0 billion in the quarter.
For the third quarter of 2013, Oracle expects non-GAAP
earnings in the range of 64 cents to 68 cents per share, which is
significantly higher than the year-ago level (62 cents).
Currently, the Zacks Consensus Estimate (includes stock-based
compensation) is pegged at 58 cents.
Total revenue on a non-GAAP basis is expected to grow in the
range of 1.0% to 5.0% (in $). New software license and cloud
subscription revenue growth is expected to range from 3.0% to 13%
(in $). Hardware product revenue is expected to be in the range
of (10%) to flat (in $) for the upcoming quarter.
After reporting a disappointing first quarter, Oracle bounced
back in the second quarter on the back of strong new software
license sales. Management's third quarter guidance is positive on
both year-over-year and sequential basis. We believe that speedy
adoption of engineered systems and cloud suites will drive
incremental top-line growth going ahead. Oracle's solid product
suite lends a competitive edge over rivals like
International Business Machines Corp. (
SAP AG (
However, lower hardware volumes remain a concern in the near
term. As Oracle sells higher-margin products compared to its
competitors, we anticipate that a sluggish market and lower IT
spending may act as a headwind to hardware volume going forward.
Oracle could see integration issues due to the rapid pace of
acquisitions within a short span of time.
We maintain a long-term Neutral recommendation on Oracle.
Currently, Oracle has a Zacks #4 Rank (Sell).
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