Are Oracle's Earnings a Fluke?

Oracle (NASDAQ: ORCL) earnings missed almost all Wall St. estimates and its shares fell 8%. The company has been among the most successful in the tech sector for years. Was the report a sign that Oracle has lost momentum, or has the entire enterprise software industry faltered?

Oracle’s sales rose only 2% in the quarter that ended November 30 to $8.29 billion. EPS was $0.43, compared to $0.37 last year. Hardware system revenue fell 10% to $1.58 billion.

Oracle is the world’s largest enterprise software company. In the past two years, it has faced more aggressive competition from Microsoft (NASDAQ: MSFT), IBM (NYSE: IBM), SAP (NASDAQ: SAP) and Salesforce.com (NYSE: CRM) in particular. Each has had a chance to examine Oracle’s strength as it grows, primarily through acquisition. Oracle is a particularly attractive target, as most market leaders are.

There is no evidence that IT departments at large companies and government enterprises have sharply curtailed their activity to upgrade essential systems. That likely will mean that Oracle has lost market share, and it probably will continue to do so. Competition has found weak spots in Oracle’s product and service lines.

Oracle has been successful in large part because CEO Larry Ellison has been particularly talented in his choice of buyout targets and his ability to almost seamlessly integrate these firms into his company. The integration process usually has kept sales from the new operations while effectively dropping costs.

One quarter does not mean Ellison’s miracle is over. A second weak quarter would.

Douglas A. McIntyre