Oracle Forecast Trails Estimates as Cloud Rivals Hover

Oracle Corp. (ORCL) issued a weaker-than-projected outlook for the remainder of the year, warning that it still has to close big corporate deals to remain on course.

The largest maker of corporate-database software predicted yesterday that profit, excluding some items, for the fiscal second quarter will be 64 cents to 69 cents a share. Oracle would have to reach the top of that range to match analysts’ 69-cent average estimate, according to data compiled by Bloomberg.

Chief Executive Officer Larry Ellison is coming off a year of stagnant sales as Salesforce.com Inc. (CRM) and Workday Inc. (WDAY) eat into Oracle’s revenue with Web-based products. While he’s seeking to convert customers to cloud-computing and buying smaller companies to offer more business software, Ellison faces headwinds in technology spending that’s resulted in flat to negative sales growth in the last two fiscal quarters.

“The broad brush with Oracle is you have a challenging IT spending environment and a number of new-product cycles,” said Josh Olson, an analyst at Edward Jones & Co. who recommends buying the shares. “That’s going to be the story for the next fiscal year: how much momentum they can get for these new products.”

Oracle, based in Redwood City, California, rose less than 1 percent to $33.89 at the close in New York. The stock has advanced 1.7 percent this year, compared with a 21 percent increase in the Standard & Poor’s 500 Index.

SAP AG (SAP), the biggest maker of business-management applications, was little changed at 55.84 euros in Frankfurt.

Delivering Results

Oracle is selling databases and applications that run on businesses’ own computers, Web-delivered cloud computing services and two types of computer hardware. While the company is managing an expanding product line, it’s also seeking to convert customers to newer cloud-computing tools.

“Everybody’s just trying to have a little bit of room, and we could do significantly better,” Chief Financial Officer Safra Catz said on a conference call yesterday. “Even though our pipelines are big, we still have to close all those deals, and I just can’t assume that we will.”

Adjusted sales in the fiscal first quarter ending in August trailed analysts’ estimates, rising 2.1 percent to $8.38 billion, compared with the average analyst projection for $8.48 billion. Net income rose 7.7 percent to $2.19 billion.

New software license and cloud revenue, a key indicator of future sales, climbed 4 percent to $1.66 billion in the first quarter, Oracle said. Walter Pritchard, an analyst at Citigroup Inc., had projected new license sales of $1.65 billion.

Replacement Revenue

A survey of 100 chief information officers in the U.S. and Europe showed companies predicting flat information-technology spending in the second half of the year from a year earlier, according to a report issued by Barclays Capital Inc. That’s less robust than an April survey in which CIOs anticipated budget growth.

SAP, based in Walldorf, Germany, reported its first software-sales decline in more than three years in July. Salesforce and Workday, which deliver their tools as a service over the Internet, said yesterday that they’re making it easier for customers to access data from each other’s products and have reported strong sales gains.

“That’s a really fundamental issue the incumbents are having with this shift to software as a service,” said Pat Walravens, an analyst at JMP Securities LLC in San Francisco, who has the equivalent of a hold rating on the shares. “It’s replacement revenue, it’s not new revenue.”

High Stakes

Hardware sales stemming from Oracle’s 2010 acquisition of Sun Microsystems fell 14 percent to $669 million, compared with Pritchard’s $803 million estimate.

There were bright spots. Sales of Oracle’s Exadata and Exalogic computers increased 60 percent during the quarter, and software license growth was 15 percent in North and South America, when adjusted for currency effects.

Ellison is scheduled to kick off Oracle’s annual OpenWorld conference on Sept. 22. The company said he’ll unveil an add-on product to Oracle’s latest 12c database that lets customers run programs using faster computer memory instead of hard drives.

The update, designed to speed software performance, bolsters competition with SAP’s high-speed database called Hana. Oracle executives are scheduled to discuss financial goals for the year with analysts on Sept. 26.

The results added up to a tough day for Ellison. The CEO couldn’t join the analyst call because he was attending an America’s Cup yacht race on San Francisco Bay, Catz said. Oracle Team USA, backed by Ellison, lost the first race and the second was scrubbed because of strong winds, putting Emirates Team New Zealand one race away from clinching the trophy.

“It’s symbolic, what’s going on in the race,” said Brent Thill, an analyst at UBS AG who recommends buying Oracle shares. “They’re having a tough time on the water and they’re having a tough time in the office.”

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

To contact the editor responsible for this story: Pui-Wing Tam at ptam13@bloomberg.net

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