Oracle's third-quarter results were disappointing with both
earnings and revenues missing the Zacks Consensus Estimate.
However, management provided positive guidance for the fourth
quarter. We believe that the speedy adoption of engineered systems
and cloud suites will drive incremental top-line growth, going
ahead. The company's newly launched low-cost engineered systems are
expected to attract price-sensitive customers in the long run.
Moreover, higher subscription revenues are expected to provide a
recurring high-margin revenue base, going forward. Additionally,
improvement in sales force hiring rate will continue to boost
bookings. However, this may hurt margin expansion in the near term.
Further, stiff competition remains a major near-term headwind.
Thus, we remain Neutral on the stock and set a price target of
Redwood City, Calif.-based Oracle Corporation (ORCL) was founded
in 1977 and incorporated later in 2005. Oracle is one of the
largest database and enterprise Software providers. With the
acquisition of Sun Microsystems in Jan 2010, Oracle began selling
hardware products and services, primarily comprising computer
server and storage products.
Oracle reported revenues of $37.22 billion in fiscal 2013. The
company reports revenues under three heads Software (74.0% of
revenues in fiscal 2013), Hardware systems (14.0% of revenues in
fiscal 2013) and Services (12.0% of revenues in fiscal 2013).
The following is the graphical representation of the business
Software The software segment is divided into two sub-segments -
New Software Licenses and Software License Updates and Product
Support. Revenues from the New Software Licenses segment (28.0% of
2013 revenues) include fees earned from granting customers license
to use Oracle's database, middleware and applications software
products, as well as subscriptions from cloud software
Application Software offers products catering to customer
relationship management, financials, human resources, maintenance
management, manufacturing, marketing, order fulfillment, product
lifecycle management, enterprise project portfolio management,
procurement, sales, services, enterprise resource planning and
supply chain management.
The Software License Updates and Products Support segment offers
unspecified software product upgrades and maintenance releases as
well as Internet access to technical content and Internet and
telephone access to technical support personnel. The segment also
offers proactive and personalized support services, including
Lifetime Support policy, product enhancements and upgrades.
Hardware Systems The hardware systems business consists of two
operating segments Hardware Systems Products and Hardware Systems
Support. Hardware Systems Products (8.0% of 2013 revenues) comprise
servers, storage products, networking components, operating systems
and other hardware-related software. The Hardware Systems Support
(6.0% of 2013 revenues) segment provides customers software
component updates and includes product repairs, maintenance
services and technical support services.
Oracle's Engineered Systems are a part of its hardware segment.
These systems are pre-integrated products comprising multiple
elements of Oracle software and hardware products. Oracle
Engineered Systems include Exadata Database Machine, Exalogic
Elastic Cloud, Exalytics In-Memory Machine, SPARC SuperCluster,
Oracle Database Appliance and Oracle Big Data Appliance.
Services The services business comprises three operating
segments - Consulting, Managed Cloud Services and Education. The
Consulting segment provides services in the areas of business
strategy and analysis, business process simplification, solutions
integration, product implementation and the enhancement and upgrade
of software products. The Managed Cloud Services segment offers
software and hardware management and maintenance services for its
software products and lifecycle management services, database and
application management services, industry-specific solution support
centers and remote and on-site expert services. The Education
segment provides instructor-led, media-based and Internet-based
training for the use of its software products.
The company sells its products and services primarily through
subsidiary sales and service organizations, as well as through
indirect channels such as original equipment manufacturers (OEMs),
distributors, large account resellers (LARs), value added resellers
(VARs), system integrators/implementers, consultants, education
providers, Internet service providers, network integrators and
independent software vendors. The company's customer base includes
large businesses, government agencies, educational institutions and
resellers. No single customer accounted for more than 10% of the
revenues in fiscal 2013.
Oracle operates in the Americas (approximately 53.0% of 2013
revenues), Europe, the Middle East and Africa or EMEA (30.0%) and
the Asia-Pacific (17.0%).
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