Oracle Shares Slide: Ominous Prophecy for Tech Sector?
The growing analysts’ fancy for the tech sector received a jolt today as Oracle Corp (NASDAQ:ORCL) reported earnings for its second quarter that was well short of Street estimates. An earnings miss by Oracle is a rare event – this one being the first in a decade, and the market took it on the chin with Oracle’s shares declining more than 10%.
The results reflected a slowdown in software and hardware sales which, like earnings, were also off target. The company reported profits excluding items of 54 cents, against analysts’ expectations of 57 cents. Hardware sales fell by 14% to $953 million, which the Street had expected to come in at $1.06 billion. New software sales rose 2% compared to a year ago to $2 billion against expectations of $2.2 billion. Software maintenance revenue fell to $3.99 billion, down from $4.02 billion in the first quarter.
Oracle laid the lackluster results at the door of cautious customers who were increasingly questioning investments in technology, and forecasted a weak current quarter with new software sales growth of 0-10%, compared with an average forecast for about 7% growth.
Analysts are, however, concerned that the results may be the harbinger of a deeper malaise – businesses cutting back seriously on tech spending. “Companies around the world are slowing their approval process for projects,” said Fred Hickey, Editor of the High-Tech Strategist investment newsletter. “That’s what happens in downturns. Companies slow their spending. They slow their approvals.”