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Oracle struggled to close deals and came up against more stringent approvals processes in fiscal Q2 2012 (ending November 30 2011), causing it to land with a hard bump and contribute to the general fear that organisations are starting to cut back on tech spending.
With revenue up just 2% to $8.8bn (against expectations of 7%), the latest results were a stark contrast to the two most recent quarters (see Oracle surprises with strong EMEA performance in Q1 and Oracle: apps and database rise, hardware drops), causing shares to drop c8.5% in after hours trading.
Given the economic backdrop a miss on expectations would not have been so surprising but it was the size of the difference between expectations and reality that was notable. Reading between the lines it looks like even the Oracle execs were surprised by this. New software licence revenue was up 2% to $2bn against Oracle’s own expectations of 6% to 16%. Maintenance revenue was up 9% to $4bn but that is of little comfort when the new licence sales that fill this line are down. As expected, hardware revenue was down again, this time by 10% (and expected to fall by a further 5% to 15% in Q3) – for all its promotion of the hardware/software ‘Exa’ product line, Oracle really has not got to grips with the pure hardware operation.
Oracle remains optimistic that Q3 is a temporary glitch. New approvals hurdles rose up at the end of the quarter, pushing deals into the current one, but it says it is hopeful of closing them and will factor in longer contract negotiation periods from now. It is also adding 1700 new staff to increase sales momentum. But the wider question is whether Oracle’s quarter marks the start of a new downturn. More approvals hurdles are a mark that organisations are looking to their budgets.
Despite these woes the company did manage to post a 17% increase in net income, taking the figure to $2.2bn, and raised its operating margin to 45%.
EMEA was little more than flat with revenue from the region moving from $2.7bn to $2.8n. Within the region database sales were up by 4% but revenue from applications fell by 4% (and hardware was down 17%). Oracle will be looking for Fusion applications to boost revenue.
The overall results suggest that Oracle will be paying a lot more attention to the cloud and that it will make the RightNow acquisition work hard once it completes because of its potential to add volume to sales.
As to the wider picture, Oracle is probably the early warning sign that spending is slowing but it is too early to estimate by how much.
