When the company you’ve invested in and trusted with a sizeable amount of your money posts earnings short of Wall Street estimates for the first time in over a decade, it’s time to get concerned. And when that company is Oracle, the situation is the more urgent. In no time, Oracle’s poor revenues caused shares to plunge.
The company explained that it missed sales and profit estimates because of slower demand for databases, applications and computer servers. As a result, profit before costs in the fiscal second quarter ended November 30, was 54 cents per share, or $8.81 billion revenue. Analysts with Bloomberg released an estimate of 57 cents on sale or $9.23 billion. Net income in the second quarter rose 17 percent to $2.19 billion, or 43 cents a share.
The bad news caused panic on markets, as the stock plunged 9.6 percent or $26.54 in German trading. In U.S. trading, Oracle’s shares dropped to $26.10.
When looking at the overall economic environment it’s not difficult to understand why Oracle has missed earnings’ estimate, but a more in-depth look makes things a little bit challenging. Oracle is one of the most prolific companies in the IT sector, which is thriving. There’s a M&A frenzy going on and most brokers recommend investing in shares with companies active in this field. What’s going on?
Pat Walravens, analyst with JMP Securities explained for Bloomberg: “The economy got a little harder for them. In that situation you need to manage your sales force a little more carefully. They were not doing that this quarter”.
A lot of people started to wonder whether Oracle’s earnings are in fact the living proof that the IT sector is not as healthy and successful as it looks. Now that Oracle joined Hewlett-Packard Co, Dell Inc, Red Hat, Intel Corp, Texas Instruments and NetApp with regard to poor performance on the markets, analysts and brokers alike are seeing red flags.
John Olson, analyst at Edward Jones & Co, fears that Oracle’s poor revenue “is indicative of some pullback in general enterprise IT spending”. If the situation continues over the next year, with so many IT deals to be finished in the first half of 2012, while companies, governments and banks are poised to reduce costs, Oracle and the like “are going to feel the brunt of that”.