Oracle Corp (
reported mixed first quarter fiscal 2014 results. Although
earnings of 56 cents (excluding amortization, acquisition related
charges and restructuring) beat the Zacks Consensus Estimate by 3
cents, revenues of $8.38 billion missed the consensus mark.
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Oracle provided cautious second quarter guidance due to tough
year-over-year comparisons and lack of visibility surrounding the
closure of corporate deals. Shares fell 3.0% ($1.02) following
the weaker-than-expected outlook.
Revenues increased 2.1% year over year to $8.38 billion in the
first quarter of fiscal 2014. Unfavorable currency negatively
impacted revenues by 2.0% in the quarter.
The year-over-year growth rate missed management's guided range
of 3.0% - 6.0% growth. The modest growth in revenues was
primarily driven by higher software revenues, which were
partially offset by declining hardware and services revenues.
Software revenues (72.6% of revenues) increased 6.1% year over
year to $6.09 billion, primarily driven by a 6.9% increase in
software license update and product support revenues. New
software licenses and cloud software subscription revenues
climbed 4.0%, which was in line with the mid-point of the
management guided range of 0.0% to 8.0% growth.
New software licenses and cloud software subscription revenues
grew 14.0% from the year-ago quarter in Americas but declined
4.0% in Europe, Middle East and Africa ("EMEA") and 5.0% in
Database grew at a double-digit growth rate in the quarter,
driven by strong performance from Database Options and Enterprise
Manager. Oracle won a number of significant cloud customers such
as A&A, LinkedIn, SIRIUS XM Radio, Telus and Barclays Bank.
The company's Taleo product also won a number of contracts with
major customers such as Honeywell, Emerson, Humana, Xilinx and
During the first quarter, Oracle entered into partnerships with
, NetSuite and
Hardware revenues declined 6.7% year over year to $1.27 billion.
This was primarily due to a 14.1% year-over-year decline in
hardware systems products revenues, which was partially offset by
3.3% growth in hardware systems support.
Engineered systems (Exadata, Exalogic, Exalytics) customer base
continued to grow in the quarter as the company added new clients
such as Eton, Telecom Italia, China Mobile, SunGard, Ingersoll
Rand and Hitachi.
Oracle shipped more than 800 units (40.0% sold to new customers)
of engineered systems during the quarter. Exalytics, SPARC
SuperCluster and the Oracle Database Appliance all grew more than
100.0% in the quarter.
Hardware systems product sales declined in all the regions with
Americas down 12.0% and EMEA down18.0% year over year in the
quarter. Revenues declined 15.0% in the Asia-Pacific region.
Services revenues declined 7.8% year over year to $1.03 billion
in the reported quarter.
Total operating expenses as a percentage of revenues declined 70
basis points (bps) from the year-ago quarter to 57.7%. Sales
& marketing (S&M), research & development (R&D)
and Services jointly incurred 78.0% of the operating expenses in
S&M and R&D expenses increased 160 bps and 20 bps,
respectively, on a year-over-year basis in the quarter. However,
Services as a percentage of revenues declined 120 bps from the
Operating margin jumped 70 bps on a year-over-year basis to
42.3%, primarily due to declining operating expenses. Net income
margin expanded 170 bps on a year-over-year basis to 31.2% in the
Oracle exited the first quarter with cash and marketable
securities of $39.10 billion compared with $32.22 billion at the
end of the previous quarter. GAAP operating cash flow was $14.85
billion compared with $14.22 billion in the previous quarter.
Free cash flow of $14.18 billion ($13.57 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 92.8 million shares
for $3.0 billion in the quarter.
For the second quarter of 2014, Oracle expects non-GAAP earnings
in the range of 65 to 70 cents per share.
Total revenue on a non-GAAP basis is expected to grow in the
range of (1.0%) to 2.0% (in $). New software license and cloud
subscription revenue growth is expected to range from (6.0%) to
4.0%. Hardware product revenues are expected to decline in the
range of 11.0% to 1.0% in the upcoming quarter.
We believe that sales execution will be of utmost importance over
the next couple of quarters as proper execution will result in
strong conversion as well as boost contract win rates. However,
soft demand environment and stiff competition from the likes of
International Business Machines (
are the major headwinds in near term.
We believe that Oracle needs to improve top-line growth in order
to boost investor confidence in the near term. The speedy
adoption of engineered systems and cloud suites will drive
incremental top-line growth going ahead.
Currently, Oracle has a Zacks Rank #3 (Hold).