) plunged 7.2% ($2.58) on the heels of disappointing
third-quarter 2013 results. Oracle reported earnings of 63 cents
per share, which missed the Zacks Consensus Estimate by a penny.
Revenues also missed the Zacks Consensus Estimate of $9.38
Revenues decreased 1.0% year over year and 1.6% sequentially
to $8.97 billion. Revenues also missed management's guided range
of 1.0% to 5.0% growth. The decline in revenues was primarily
attributed to weak execution from the sales force as a number of
deals remained incomplete in the reported quarter.
Software revenues climbed 3.7% year over year but remained
flat on a sequential basis at $6.68 billion. New software
licenses declined 1.5% from the year-ago quarter and 2.6% from
the previous quarter to $2.34 billion (missed management's guided
range of 3.0% to 13.0% growth). Software license update and
product support revenues increased 6.8% year over year and 1.9%
quarter over quarter to $4.34 billion.
New software licenses and cloud software subscription sales
were weak in Asia-Pacific, where revenues declined 3.0% year over
year, followed by Americas, where revenues decreased 2.0% from
the year-ago quarter. Europe, the Middle East & Africa
revenues remained flat on a year-over-year basis in the third
quarter. Cloud revenues were $238.0 million in the quarter.
Hardware declined 16.0% year over year and 6.1% sequentially
to $1.24 billion, primarily due to a massive 22.8% plunge in
hardware systems products and 6.2% decline in hardware systems
support revenues. T-series was the best performing server product
in the quarter. However, results were dragged down by weak
performance from M series. ZFS storage sales jumped double-digit
in the quarter.
Customers deferred hardware system purchase in the quarter as
Oracle is set to release new products shortly. The new products
include next generation servers built on the SPARC T5
microprocessor. Oracle will also launch the new upgraded M5
server, which is expected to replace the old M9000 server product
Hardware systems product sales declined in all the regions
with Americas down a massive 25%, followed by Europe, the Middle
East & Africa, where revenues declined 24% year over year in
the quarter. Revenues declined 16.0% in the Asia-Pacific
Engineered systems (Exadata, Exalogic, Exalytics) continued to
grow at a significant rate with more than 30% sequential growth
in unit bookings. Oracle sold more than 800 engineered systems to
customers that include
Office Depot (
, and Dow Chemical in the reported quarter.
Services revenues declined 8.4% year over year and 7.0%
quarter over quarter to $1.05 billion in the reported
Region wise, Americas (52.4% of revenues) remained flat on a
year-over-year basis, but decreased 1.9% sequentially to $4.70
billion. Europe, the Middle East & Africa (30.6% of revenues)
declined 1.5% year over year but increased 1.6% sequentially to
$2.75 billion. Asia Pacific (16.9% of total revenue) declined
1.9% year over year and 5.7% quarter over quarter to $1.52
Total operating expenses as a percentage of revenues remained
flat year over year but increased 10 basis points ("bps") from
the previous quarter to 55.3%. Sales & marketing ("S&M"),
research & development ("R&D") and Services, jointly
incurred 77.4% of the operating expenses in the quarter.
S&M and R&D expenses increased 130 bps and 60 bps,
respectively on a year-over-year basis in the quarter. However,
services as a percentage of revenues declined 70 bps from the
Operating margin remained flat on a year-over-year basis at
44.7%, primarily due to flat operating expenses, which fully
offset the negative impact of revenue decline. However, on a
sequential basis operating margin contracted 10 bps due to slight
increase in operating expenses.
Earnings per share ("EPS) increased 8.6% year over year and
5.0% quarter over quarter to 63 cents. EPS on a non-GAAP basis
includes stock-based compensation but excludes amortization,
restructuring and acquisition related expenses net of tax. EPS on
a GAAP basis was 52 cents in the reported quarter.
Oracle exited the third quarter with cash and marketable
securities of $33.41 billion compared with $33.70 billion at the
end of the previous quarter. GAAP operating cash flow was $13.72
billion compared with $13.53 billion in the previous quarter.
Free cash flow of $13.03 billion ($12.82 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 61.5 million
shares for $2.1 billion in the quarter.
For the fourth quarter of 2013, Oracle expects non-GAAP
earnings in the range of 85 cents to 91 cents per share, which is
significantly higher than the year-ago level (82 cents).
Total revenue on a non-GAAP basis is expected to grow in the
range of (1.0%) to 4.0% (in US$). New software license and cloud
subscription revenue growth is expected to range from 1.0% to 11%
(in $). Hardware product revenues are expected to be in the range
of (23.0%) to (13.0%) for the upcoming quarter.
We believe that Oracle needs to improve top-line growth and
execution in order to boost investor confidence in the near term.
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 it a competitive edge over
International Business Machines Corp. (
SAP AG (
Moreover, improving sales execution will result in strong
conversion as well as win rates in the near term. Hardware growth
is also expected to rebound in the first quarter of 2014, driven
by new product introductions.
Currently, Oracle has a Zacks Rank #2 (Buy).
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