Are companies confident enough in the economy to up their IT expenditure?
Oracle’s latest quarterly results should provide a peak at just how confident companies have become in the economy by their willingness to spend money on new technology.
The report, due out after the stock market closes Tuesday, covers Oracle’s fiscal third quarter – a period spanning December through February. That coincided with the biggest three-month hiring spurt in the US during the past two years. The trend could signal companies aren’t as worried about the threat of another recession, encouraging them to increase spending in other areas.
That would be good news for Oracle, which sells software and computer hardware to large companies and government agencies throughout the world.
It is the biggest maker of database software, which helps other companies organise information. It also sells many of the applications that help companies do everything from processing their payroll to managing relationships with customers and partners.
Oracle stumbled in the quarter the ended in November, largely because several prospective customers decided to delay their purchases. The skittishness raised fears that companies were clamping down on their budgets as government debt problems in Europe threatened to topple a still-fragile economy.
Now that it looks like the US economy is in better shape than it was three months ago, analysts and investors will be looking for any signs of other problems that could undercut Oracle’s earnings growth. The concerns that Oracle could be grappling with issues that extend beyond the economy have grown since other business technology vendors such as, VMware and EMC, posted solid results for their most recent quarters.
Oracle is facing tougher competition from longtime rival SAP, as well as from feisty upstarts such as Salesforce and Workday that are changing the way that companies buy and use software. Salesforce and Workday are among a crop of software makers that offer applications as a subscription service that can be accessed on any device with an internet connection. The online approach to software, nicknamed “cloud computing,” is a departure from the industry’s long-established practice of licensing and installing applications on individual machines kept in the buyer’s offices.
After initially dismissing cloud computing rivals as an inconsequential novelty, Oracle has started to invest heavily in the concept. Oracle completed a $US1.5 billion acquisition of Salesforce rival RightNow Technologies in January and has proposed buying Workday rival Taleo in a $US1.9 billion deal expected to close later this year. SAP also has hopped on the cloud-computing bandwagon with a $US3.4 billion acquisition of SuccessFactors.
JMP Securities analyst Ross MacMillan isn’t convinced Oracle’s cloud-computing acquisitions will be enough to prevent a significant number of its customers from defecting to Salesforce and Workday.
Oracle can only hope its cloud-computing deals work out better than its $US7.3 billion acquisition of Sun Microsystems. By acquiring Sun’s line of computer servers in 2010, Oracle hoped to create a one-stop shop for business software and hardware. So far, though, the idea hasn’t been widely embraced, partly because some companies don’t want to become too dependent on Oracle for all their technology.
The expansion into computer hardware also has soured Oracle’s relationship with IBM and Hewlett-Packard, which used to promote Oracle’s software more enthusiastically. The situation with HP has gotten even worse since its former CEO, Mark Hurd, went to work for Oracle in 2010 after resigning from HP in an ethics scandal.
Coming off the disappointing results at the end of last year, Oracle management set the bar low for the December-February period.
The company, which is based in Redwood Shores, California, warned its sales of new software licenses might be unchanged from the same time last year. At best, Oracle predicted its software sales would increase by 10 per cent. New software licenses are closely watched by investors because they generate future revenue for maintenance and upgrades.
Oracle forecast its sales of hardware products would fall by 5 per cent to 15 per cent from last year.
Source: SMH http://www.smh.com.au/it-pro/business-it/oracles-results-to-provide-gauge-on-technology-20120320-1vgut.html