Oracle Sales Miss Estimates in Cloud Shift; Dividend Doubled

Oracle Corp. (ORCL), the largest maker of database software, fell to a seven-month low after sales missed estimates for a second straight quarter as customers shifted spending to competitors’ Web-based business tools.

The shares slumped 9.3 percent. Fiscal fourth-quarter sales were $11 billion, Oracle said yesterday, missing analysts’ average estimate of $11.1 billion, according to data compiled by Bloomberg. While profit excluding some items of 87 cents matched estimates, Oracle’s profit forecast for the current period trailed some projections. Oracle also doubled its quarterly dividend, added $12 billion in buybacks and applied to list on the New York Stock Exchange.

Customers are choosing online applications instead of Oracle’s databases, human-resources tools and financial-management software, prompting Chief Executive Officer Larry Ellison to acquire cloud-computing companies to catch up. Still, new software license sales missed estimates, indicating that growth is stalling, according to Pat Walravens, an analyst at JMP Securities LLC in San Francisco.

“There’s no growth at Oracle,” said Walravens, who rates Oracle market perform, the equivalent of neutral. “The world is moving to software as a service and at some point all these big vendors need to get on board. But the bigger you are the harder it is,” he said. “It has been a period of slower growth and investors are starting to focus on that.”

Photographer: David Paul Morris/Bloomberg

Oracle Corp. headquarters stands in Redwood City, California. Close

Oracle Corp. headquarters stands in Redwood City, California.

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Photographer: David Paul Morris/Bloomberg

Oracle Corp. headquarters stands in Redwood City, California.

Software Sales

Shares (ORCL) of Redwood City, California-based Oracle dropped to $30.14 at the close in New York, the lowest since Nov. 16. They have declined 9.6 percent this year, compared with a 12 percent gain for the Standard & Poor’s 500 Index.

German software rival SAP AG (SAP), which is also trying to cope with cloud-service demand, fell 2.7 percent in Frankfurt to the lowest price since October.

The shift in corporate-computing habits is making it harder for Oracle to compete with cloud providers such as Salesforce.com Inc. (CRM) and Workday Inc. (WDAY) Oracle’s sales of new software licenses and cloud subscriptions, a closely watched indicator of future revenue, increased 1 percent to $4.03 billion. That was short of Walravens’ $4.22 billion estimate.

Revenue from new licenses and cloud subscriptions in the current fiscal first quarter will range from unchanged to an 8 percent increase from a year ago, excluding the effect of currency fluctuations, Safra Catz, Oracle’s chief financial officer, said in a conference call with analysts yesterday. Profit excluding some items will be 56 cents to 59 cents a share, and currency rates will lower earnings by about 2 cents, she said. Analysts were predicting 56 cents to 62 cents, and an average of 58 cents.

Cloud Shift

Oracle has been struggling to catch up to online software rivals, even as it acquires companies such as Taleo Corp., RightNow Technologies Inc. and Eloqua Inc., according to Josh Olson, an analyst at Edward Jones & Co. in Des Peres, Missouri.

“They were caught flat-footed by the interest in the software-as-a-service model,” Olson, who has a buy rating on the stock, said in an interview. “Seasonally, the fourth quarter is their biggest and most important software quarter and we have a miss here on software,” he said. “It appears the missed sales execution continues.”

Net income rose to $3.81 billion, or 80 cents a share, from $3.45 billion, or 69 cents, a year earlier.

Database Customers

Hardware-systems sales, including products gained in the 2010 acquisition of Sun Microsystems Inc., declined 13 percent to $849 million.

Mark Hurd, Oracle’s co-president, told analysts that economic slowdowns in China and Australia hampered the quarter’s results, while the company did “pretty darned well in Europe,” which accounted for 17 percent of sales.

Oracle will announce next week that companies including Salesforce, Netsuite Inc. (N) and Microsoft Corp. are “committing” to use Oracle’s latest 12c database, designed for companies running cloud-computing software, Ellison said on the call. Salesforce and Netsuite already run Oracle’s database to power their applications, while Microsoft and Oracle have been longtime rivals in the database market.

Microsoft CEO Steve Ballmer and Satya Nadella, president for servers and tools, are joining Hurd to share details of a new partnership at a press conference scheduled for June 24, according to an invitation from the software company.

“12c is the most important technology we’ve ever developed for this next generation of cloud,” Ellison said.

The hardware business may be turning a corner too. Ellison said Oracle’s Exadata computers and other high-end “engineered systems” now account for more than a third of the company’s total hardware business. Oracle sold more than 1,200 such systems in the fourth quarter. Catz said the total hardware business, including less expensive servers, could grow this quarter.

‘Hardware Declines’

“We may just have seen the last of annual hardware declines,” Catz said.

Oracle is also returning more cash to investors. It doubled the quarterly dividend to 12 cents a share from 6 cents. Ellison, the company’s biggest investor, didn’t participate in discussions concerning the dividend, which will be paid on Aug. 2 to stockholders of record as of July 12.

The company has spent more than $50 billion on a string of about 100 acquisitions since 2005 to bolster its sales, profit and stock price.

Oracle’s plan to move its listing to the New York Stock Exchange (NYX) from the Nasdaq Stock Market makes it the biggest company ever to jump between the rival exchanges. Oracle’s board determined that the switch would be in the best interests of its shareholders, customers and partners, the company said.

To contact the reporter on this story: Aaron Ricadela in San Francisco at aricadela@bloomberg.net

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net

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