San Francisco - Oracle reported fiscal third-quarter sales that missed analysts’ estimates, hurt by a rise in the US dollar and weak corporate demand for cloud software.
Revenue in the period that ended February 28 was little changed from a year earlier at $9.33 billion, and profit before certain costs was 68 cents a share, the Redwood City, California-based company said on Tuesday in a statement. On average, analysts projected $9.47 billion in sales and profit of 68 cents, according to data compiled by Bloomberg.
Without the effect of the stronger dollar, revenue would have gained 6 percent, Oracle said, sparking optimism that the company is making headway with its push into corporate cloud services and sending the shares up in extended trading. In recent years, Oracle had been lagging behind rivals like Salesforce.com and Workday in delivering business software and services via the internet.
“It might have just been a sense of relief,” said Dan Morgan, a senior portfolio manager at Synovus Securities, which owns 1.17 million Oracle shares. “We know they’re making the transition. At least we didn’t get the software licensing piece to drop way off.”
Dividend boost
The software maker also boosted its dividend by 25 percent to 15 cents a share, up from the prior payout of 12 cents. The company last raised its dividend in 2013, according to data compiled by Bloomberg.
Oracle shares rose 1.7 percent in late trading following the report and dividend increase. The stock fell 1.2 percent to $42.87 at the close in New York, leaving it down 4.7 percent this year.
Third-quarter net income fell to $2.5 billion, or 56 cents a share, from $2.57 billion, or 56 cents, a year earlier.
Oracle makes databases and other software that helps corporations store, sort, manage and analyse large amounts of digital information. Larry Ellison, the company’s founder and chief technology officer, said that Oracle expects to earn more money from cloud-based systems than Salesforce.com by the end of this calendar year.
“Our cloud business is growing a lot faster than even I expected,” Ellison said Tuesday on a conference call. “It’s going to be close, but I think we’re going to sell more in the cloud than they do this year.”
Quarterly forecast
For the current period, Oracle co-Chief Executive Officer Safra Catz forecast profit before certain costs of 90 cents to 96 cents a share and sales growth of 1 percent to 6 percent, not accounting for any currency fluctuations. The company didn’t give a projection that included the anticipated effects of foreign-exchange rates.
The US Dollar Index, which tracks the greenback against six major currencies, has gained about 10 percent so far this year. Foreign-exchange fluctuations have also hit other large multinational technology firms, including International Business Machines and Hewlett-Packard. Both reduced forecasts because of the stronger US currency, which means overseas sales translate into fewer dollars when brought back home.
“The FX thing has been the black cloud on the whole market,” Synovus’s Morgan said. In Oracle’s last full fiscal year, 56 percent of revenue came from overseas, according to data compiled by Bloomberg.
Foreign exchange
The recent quarter marked the second period with co-CEOs Catz and Mark Hurd at the helm of the company, following Ellison stepping down as CEO in September to become chief technology officer and chairman.
Oracle is in the process of shifting more of its business to the cloud, meaning it has to sacrifice some lucrative installable software sales for subscription-based cloud sales - which eventually could help boost profit margins. It is also facing greater competition in the market for corporate data-centre hardware, and it announced in January that it would cut the prices of some of these products to gain customers and pose a bigger challenge to companies such as Cisco Systems and EMC Corporation.
In the third quarter, software licence updates and product support revenue grew to $4.66 billion, up 2 percent from $4.56 billion a year earlier, representing almost 50 percent of the company’s revenue.
New software license sales - a critical indicator for Oracle’s ability to grow its future customer base - dropped to $1.98 billion from $2.13 billion a year earlier.
Hardware systems revenues fell almost 2 percent to $1.3 billion as Oracle dealt with shifts in the data-centre computing market away from the type of high-margin, high-performance hardware it makes.
Cloud results
Combined sales in Oracle’s cloud software, platform-as-a-service - known as PaaS - and infrastructure businesses were $527 million, up 29 percent from $408 million a year earlier. The company started disclosing cloud revenue in June.
In the long term, Oracle’s transition to the cloud should benefit the bottom line, Catz said on the conference call.
“For every million dollars of license we sell, we expect to collect another million dollars of support over five years for a total of $2 million,” she said. “While for every million of PaaS we sell, we actually expect to collect $5 million over five years.”
Bloomberg