Oracle Delivers On Lower Q2 Earnings Expectations

Meeting analysts expectations, software giant Oracle Corp. , today announced second quarter revenues of $2.4 billion and net income of $549 million.

Earnings per share of $0.10 compares with $0.11 in Q2 last year. Second quarter operating margins were 35 percent versus 36 percent last year. New software license sales were down 27 percent, while software license renewals and product support services were up 8 percent and 12 percent, respectively.

Analysts had expected Oracle to report earnings of 10 cents a share, on average, according to Thomson Financial/First Call. Revenue was $2.36 billion, compared with $2.66 billion last year.

Sales figures were expected to be $2.45 billion in the November quarter, according to Thomson Financial/First Call. Shares of Oracle fell 43 cents to close at $14.67 in regular Nasdaq trading.

Oracle CEO Larry Ellison, gave a cautious outlook for the company’s Q2 results when he spoke at the Comdex trade show in Las Vegas on November 12, 2001.

He had said that due to the difficult economic climate since Sept. 11, results would fall short of Wall Street’s estimates for the fiscal second quarter. He had predicted earnings to more likely be at 9 or 10 cents per share, missing analysts’ initial earnings expectations of 11 cents per share for the three months ending November 30.

“For Oracle, this quarter included the September 11th tragedy and its impact on an already weak economy,” says Oracle CFO, Jeff Henley. “In a difficult economy we are gratified that our business automation has allowed us to continuously take cost out of our business while expanding our engineering capacity.”

“It was our toughest quarter in a decade, but we still made over $800 million dollars in operating profit and a 35 percent operating margin. When the economy improves, we will earn a lot more,” says Ellison. “With over 1,000 customers live on the E-Business Suite, more and more of the world’s most profitable businesses are benefiting from dramatic productivity improvements.”

“We remain very enthusiastic about our new Oracle 9i database and 9i Application Server. We see continued market share gains in our platform business as over 25 percent of our new customers in the General Business space are replacements of IBM DB2 and Microsoft SQL Server. Our Application Server growth remains strong at 52 percent,” Ellison continues.

Goldman Sachs commented earlier that today’s results should give little surprise given Ellison’s announcement at Comdex.

Given that Oracle’s management believes that there will a pick-up in IT spending starting in the spring of 2002 which are likely to benefit he firm’s results by the second half of 2002, the analyst firm outlined several metrics to watch for Oracle’s November quarter:

  • Total Revenues: We are modeling for total revenues of $2.425 billion (down
    9 percent YOY, up 8 percent sequentially – Fiscal 01 Q2 revenues were up 18 percent sequentially a year ago). For fiscal (May) 2002 we are currently modeling revenues down 5 percent YOY.

  • License Revenues: We are modeling $850 million (down 24 percent YOY and up 16 percent sequentially, License revenues were up 39 percent a year ago from Q1 to Q2).

  • Service Revenues: We are modeling service revenues of $1.575 billion up 2 percent

  • EPS: We are modeling EPS of $0.10 (down 7 percent YOY – street consensus is
    $0.10 according to First Call). For fiscal (May) 2002 we are modeling EPS of $0.43 – street consensus currently is $0.45

  • Database Revenues: We are modeling $650 million (down 20 percent YOY, and up about
    15 percent sequentially, database revenues were up about 32 percent sequentially a year ago. For the full fiscal (May) 2002 year we are currently modeling Database revenues down 14 percent YOY.

  • Applications Revenues: We are modeling Applications revenues of $180 million for the second (Nov) fiscal quarter, down (36 percent) YOY and a roughly 23 percent sequential decline (Applications revenues were up 79 percent a year ago).
  • Operating Margins – We are modeling Operating Margins of 35 percent up from 33 percent in Q1, Operating margins were 36 percent a year ago.

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