Oracle's third quarter misses on many fronts

Revenue for the software heavyweight comes in way short of expectations, and hardware systems sales continue to fall.

Oracle's third quarter earnings had a big buildup but fell short of analysts' expectations amid currency fluctuations and a sales shortfall in most units.

The company reported third quarter earnings of $2.5 billion, or 52 cents a share, on revenue of $8.96 billion, down 1 percent from a year ago. Non-GAAP earnings were 65 cents a share.

Wall Street was looking for earnings of 66 cents a share on revenue of $9.38 billion.

In a statement, Oracle largely blamed currency fluctuations. A stronger U.S. dollar hurt reported revenue. However, even with constant currency Oracle's total revenue would have been flat. Non-GAAP earnings would have been a penny higher to meet expectations.

What's the problem?

  • For starters, new software licenses and cloud subscriptions fell 2 percent to $2.3 billion.
  • Hardware systems products revenue in the third quarter was $671 million, down 23 percent from a year ago.
  • Software license updates and support revenue was up 7 percent from a year ago.
  • The results countered analysts' collective bullishness leading up to the report.

What's notable about Oracle at this juncture is that it is facing multiple challenges. First, there's the obvious software as a service competition from the likes of Salesforce.com and Workday. But there is also talk that Oracle has had trouble keeping subscribers from its recent cloud purchases.

And then there's the attack on Oracle's maintenance revenue stream from Rimini Street. Toss in big data, Hadoop and NoSQL and Oracle's database unit may also see challenges. What's unclear is whether Oracle's second quarter, which did well, or the third quarter, which bombed, is representative of the company's fortunes going forward. 

Reaction to the results was swift.

orcl032013a

 

Oracle executives touted the company's operating margin---47 percent on a non-GAAP basis---cloud applications and the new SPARC T5 servers, which will be unveiled next week. The challenge for Oracle is that cloud subscriptions fell along with new licenses and hardware sales have been dismal for multiple quarters. 

orcl032013b


By the numbers:

  • Sales and marketing expenses in the third quarter were $1.8 billion, up 6 percent from a year ago.
  • Research and development spending in the third quarter was $1.186 billion, up 4 percent from a year ago.
  • Hardware system product expenses were down 21 percent in the third quarter to nearly match the decline in sales.
  • Software revenue in the third quarter was $6.67 billion, up 4 percent from a year ago. Of that sum, software license and cloud subscription revenue was $2.33 billion, down 2 percent from a year ago. Software license updates and product support revenue was $4.34 billion, up 7 percent from a year ago.
  • Hardware systems revenue was $1.24 billion, down 16 percent from a year ago. Hardware support revenue fell 6 percent and products dropped 23 percent. Analysts had been looking for Oracle to turn the corner on its hardware business soon.
  • The company ended the third quarter with $16.1 billion in cash and equivalents.

This story originally appeared at ZDNet's Between the Lines under the headline "Oracle's Q3 falls short, revenue misses mark; Hardware systems tank again."

 

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