Is Oracle's drop in new sales an indication of things to come for the enterprise software space as a whole?
BOSTON (Reuters) - Oracle Corp (ORCL.O: Quote, Profile, Research) posted
disappointing quarterly software sales on Wednesday and said
its customers had become more cautious, quashing the idea that
the software sector would be immune to the economic turmoil
that has roiled the rest of the tech sector.
Oracle shares fell 8 percent on the news, which also pulled
down the stocks of other software makers like SAP (SAPG.DE: Quote, Profile, Research).
Chief Financial Officer Safra Catz warned that businesses
had delayed approving purchases of Oracle's software toward the
close of its fiscal third quarter, which ended on Feb 29. The
company would likely have a tougher time closing sales this
quarter than it did a year ago, she added.
"Customers got a little more cautious toward the end of the
quarter," Catz said on a conference call with analysts
following the results.
Oracle's stock had gained 10 percent in the month leading
up to Wednesday's fiscal third-quarter earnings report, on
expectations the results would be a bright spot among an
increasingly disappointing flow of corporate results.
"People have turned to the software sector in general as
somewhat defensive, but it's not immune," said Charles DiBona,
an analyst at Sanford C. Bernstein & Co who has a "market
perform" rating on Oracle shares.
As Oracle's fiscal quarter closes a month earlier than the
typical March 31, investors look to it as an indicator of how
other software makers will perform.
While profit matched market expectations, Oracle's sales of
new software -- which investors look to as an indicator of
future financial performance -- rose 16 percent, near the low
end of its December forecast of 15 to 25 percent growth.
Sales of new business management software rose 7 percent to
$451 million, short of the $553 million that Wall Street was
expecting according to Brendan Barnicle, an analyst at Pacific
Crest Securities.
Shares of rival SAP (SAP.N: Quote, Profile, Research), the No. 4 software maker by
total sales but No. 1 in business management, fell 3.5 percent
following the earnings report.
Shares of International Business Machines (IBM.N: Quote, Profile, Research), the No.
2 software maker, fell 1 percent after-hours, while No. 1
Microsoft Corp (MSFT.O: Quote, Profile, Research) was down less than 1 percent.
BUSINESS MANAGEMENT SOFTWARE
Goldman Sachs analyst Sarah Friar said that Oracle's sales
of business management software, or applications, such as
accounting programs, were particularly disappointing.
"The applications business is definitely very weak. That
makes me worry about what software (results of other companies)
will look like for the March quarter. I think this is
definitely going to spook the market," said Friar.
Oracle's results had previously outperformed expectations.
This was the first quarter that it has disappointed Wall Street
since the economic downturn began.
Net income in the quarter rose 25 percent to $1.34 billion,
or 26 cents per share, from $1.03 billion, or 20 cents, a year
earlier, the company said.
Profit excluding items was 30 cents per share, which was in
line with Wall Street forecasts. But non-GAAP revenue was $5.37
billion, which was lighter than the average analyst forecast of
$5.415 billion, according to Reuters Estimates.
New software sales figures are followed because the
customers also sign maintenance contracts that cost 20 percent
of the product price per year. Also, software makers get extra
revenue from customers when they expand the number of workers
using a computer program that they have already purchased.
Oracle shares were down to $19.15, or 8.5 percent, in
after-hours trading after closing at $20.94 on Nasdaq.
(Additional reporting by Philipp Gollner and Tiffany Wu;
Editing by Gary Hill, Leslie Gevirtz)
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