Oracle Shocks Investors After Missing Forecasts

Shares in Oracle have plunged after the enterprise software behemoth shocked Wall Street by missing its quarterly forecasts for the first time in ten years.

On the surface Oracle’s results seemed solid but unspectacular for the company, regarded by many analysts as one of the bellwether firms for the tech industry.

Order downturn

For its fiscal second quarter, Oracle reported profits of $2.2 billion (£1.4bn) compared to a year-ago profit of $1.87bn (£1.2bn). Sales even rose two percent to $8.8bn (£5.6bn) from $8.6bn (£5.5bn) in the year ago quarter. However the two percent sales growth was well below the seven percent growth that Wall Street had been expecting.

It reportedly came because large customers failed to sign up to new orders as expected. Indeed, Oracle admitted to weak growth in new software licences and a greater-than-expected decline in hardware sales.

The miss caused a nervous reaction on Wall Street and Oracle’s share price fell 13.7 per cent to $25.17 (£16.04). As of 4.30pm GMT on Wednesday, Oracle’s shares on Nasdaq were down even further to $25.14 (£16.02), a 13.8 percent decline.

Investors are concerned because Oracle is the world’s third largest software maker. It missing its targets is causing worry over the financial health of the tech sector in general, espicially as the run up to the year-end usually sees customer deals being closed and deals being signed.

The concern is that customers are not signing on the dotted line because of fears over the state of the global economy.

Tech Sector Woes?

It worth noting that Oracle is not alone here. According to Reuters, Oracle has joined a growing number of big name tech firms such as Hewlett-Packard Co, Dell Inc, Red Hat, Intel Corp, Texas Instruments etc, all of whom have warned about worsening business conditions.

Oracle for its part downplayed the forecast miss and put the blame squarely on cautious customers, who it says are subjecting new tech orders to more levels of scrunity.

This was the line reportedly take by Oracle President and Chief Financial Officer Safra Catz during the conference call. She said that some clients began requiring that purchases be approved by more senior executives, prolonging the time it took to close sales.

Yet there is deep concern that the miss heralds a fresh round of customer spending cutbacks.

“Companies around the world are slowing their approval process for projects,” Fred Hickey, editor of the High-Tech Strategist investment newsletter. “That’s what happens in downturns. Companies slow their spending. They slow their approvals.”

In September Oracle recorded a 12 percent revenue jump, to $8.4 billion (£5.4bn), and a net income rise 36 percent to $1.8 billion (£1.2bn). CEO Larry Ellison dismissed concerns at that time about the decline in x86 server revenue.

Of late Oracle has been pushing the ‘big data’ concept and in October offered $1.5bn (£956m) for Rightnow Technologies as it seeks to boost its CRM and cloud credentials and take on Salesforce.com.