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Oracle Earnings Spark Fears of IT Downturn; Analyst Says Concerns Are Premature

Oracle stunned analysts late Tuesday with news that its latest earnings report fell far short of projections.

The company reported $8.8 billion in sales for the quarter ending Nov. 30, representing growth of only 2 percent. That's far off the target of 5 to 9 percent growth, which was projected based on Oracle's guidance and analyst estimates. Oracle also warned that revenues for its current fiscal quarter, which ends Feb. 29, will fall between $8.9 billion and $9.2 billion, lower than the previously projected $9.45 billion.

Software sales rose 7 percent, hardware revenues sank 10 percent and services revenues were flat.

Oracle blamed the overall shortfall on customers skittish on making IT investments. Vendors such as Red Hat, Dell, Hewlett-Packard Co., NetApp, Intel and others have recently raised alarms, as well, noted Reuters. Intel blamed its lowered forecast on a shortage of hard disk drives, caused buy flooding in Thailand.

Oracle's revenue and earnings miss have stirred some fears that IT spending may be in for a rough ride in 2012. The problem with Oracle's surprisingly dismal report is that the company has recently outperformed the tech sector, noted Forrester Research analyst Andrew Bartels in a blog post on Wednesday. However, he also said it's too early to presume that this presages an overall IT downturn in 2012 for a number of reasons.

First, IT services giant Accenture last week reported a 17 percent increase in revenues to $7.1 billion for the same three-month period. Second, the final month of Oracle's quarter coincided with poor economic news, including the European debt crisis, plus weak employment figures that were released at the time.

December's economic indicators have improved, Bartels noted, suggesting that IT vendors whose quarters end on Dec. 31 may see better numbers. Third, he noted that Oracle had benefited for some time from momentum, which may have run its course. Its newest product, Oracle Fusion, is too new to have gained ground, Bartels added

He said exchange rates also played a role (and likely will in other vendors' reports). A stronger dollar resulting from the European debt crisis has affected currency-adjusted revenue, he said. "Much of the slowdown in Oracle's revenues is purely due to currency impacts, not just to a drop in customer demand," he wrote.

Oracle's Sun server and storage business has struggled for some time, he added, suggesting its poor hardware results are unique to the company.

"All these factors suggest that other large vendors -- especially EMC, IBM, and SAP, but also SaaS vendors like salesforce.com -- with fiscal quarters that end in December or January may well post better results for software and certainly better results for hardware and services than Oracle did," Bartels wrote.

About the Author

Jeffrey Schwartz is editor of Redmond magazine and also covers cloud computing for Virtualization Review's Cloud Report. In addition, he writes the Channeling the Cloud column for Redmond Channel Partner. Follow him on Twitter @JeffreySchwartz.

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