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Tech Check
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Oracle's [ORCL
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] shares have been in decline, but the real question for investors, given the company's history, its products and where the enterprise market is headed, have they sold off too quickly?
The company is set to report its third quarter and by and large if you talk to analysts covering this company, who conduct their regular channel checks, it would appear this company has been doing OK, even as the recession continues to shove corporate wallets deeper into the pocket. It's Oracle's business model that keeps this company insulated, thanks to the license fees, which is exactly the number Wall Street will be focused on.
The headline numbers will be 32 cents a share on $5.46 billion in revenue. But the number that matters is licensing. The Street is looking for an 11 percent decline in total license revenue of about $1.45 billion. Patrick Walravens at JMP Securities is even lower than that, expecting a 16 percent decline to $1.365 billion. That segment is broken into two categories, technology licensing, which should come in at around $1.080 million or so, and applications licensing of $357 million.
But here's the rub: Oracle was slammed last quarter by nauseating currency fluctuations that hit a number of tech companies with a majority of their revenue coming from overseas customers. It stands to reason that investors ought to take that into account once again with today's report and not jump to instant conclusions based on the headline numbers that hit the tape. Wait a second or two to see what the currency impact is before determining whether Oracle made, beat or missed expectations.
Fact is, Oracle anticipated an 8 percent currency headwind in its third quarter, but since making that assumption, the dollar has strengthened even further, so it stands to reason that estimates not taking this into account may be higher than what Oracle reports. And on licensing, the company anticipated zero to a 10 percent decline. That also might be worse than expected because of foreign exchange. I would suspect a significant currency hit is possible with today's report.
Meantime, Walravens pays very close attention to currency, but also says that's not the entire story at Oracle. The company is a well-managed business suffering in the midst of an "IT Depression," he says.
"We rated them a 'market perform.' I downgraded (Oracle) from an 'outperform' to a market perform heading into this quarter," Walravens told me this morning. "So it's tough. They're more defensive than most names, but I think it's gonna be tough."
Tough because companies like Oracle don't tend to bounce back instantly from downturns like this one. Walravens anticipates a "number of quarters of negative license growth." Investors, he says, have to measure whether the downturn today is better, equal to, or worse than the downturn in 2002 and 2003 when Oracle suffered seven quarters between of negative license growth. There's certainly a risk of this happening again now.
Oracle's shares were as high as $18 during the quarter, but amid concern that Oracle would miss estimates with today's earnings, they've pulled back to under $15 earlier this week.
Questions? Comments?
Data is a real-time snapshot *Data is delayed at least 15 minutes