Oracle's weak Q2 raises fears about IT spending slowdown

Oracle Corp.'s weak earnings results are raising questions about enterprise spending on technology and hitting shares across the sector, with jittery investors questioning how resilient the industry is.
Oracle, one of the technology industry's bellwethers, late Tuesday reported fiscal second-quarter results that fell short of expectations.

The business-software giant said delayed customer purchases caused sales in its core software business to grow less than expected and revenue in its newer hardware division to decline more than it had feared.

The report is the latest signal that economic uncertainty could be hurting corporate demand for high-tech products. Software provider Red Hat Inc. earlier this week said revenue rose only in line with expectations rather than topping estimates as it had in previous quarters.

And storage provider NetApp Inc. last month said some of its biggest customers were taking a pause in light of macroeconomic worries.

"If ORCL is struggling to hit its goals due to macro forces, most others probably are struggling too," J.P.Morgan analyst Joe DiFucci said."This may be just the beginning of a long list of IT companies that struggle over the next quarter or more."Oracle shares, off 21% over the past 12 months, recently dropped 14% to $25.15.

The news also dragged down shares of fellow tech giants such as SAP AG, down 6.2% to $52.27, and International Business Machines Corp., down 3.7% to $180.30. Data warehousing provider Teradata Corp. lost 11% to $44.86 as Oppenheimer cut its rating to perform from outperform.

Enterprise software companies were among the biggest decliners, with Salesforce.com Inc. losing 7.9% to $96.01, and Tibco Software Inc. tumbling 13% to $20.41. Red Hat and Check Point Software Technologies Ltd. slid about 5%, and virtualization software companies VMware Inc. and Citrix Systems Inc. both lost more than 7%.

CommVault Systems Inc., which providers storage software, tumbled 16% to $38.86. Storage hardware companies also slid, with EMC Corp. and NetApp Inc. down about 4%.

While Oracle's results were weak across the board, ThinkEquity analyst Rajesh Ghai said many data center companies, including storage providers, are likely to remain somewhat immune to a slowdown as he considers their products "relatively non-discretionary." Even if  storage growth slows near-term, that could result in pent-up demand, he said.

And other analysts said some of Oracle's weakness was likely specific to the company. Canaccord Genuity analyst Richard Davis, who cut his rating on Oracle to hold from buy, said Oracle missed expectations because some buyers waited for a new hardware upgrade and because Oracle is "behind the curve" in cloud applications in its software business.

Oracle once pooh-poohed cloud computing, which allows users to access data and software remotely from Internet-connected computers, but it has been more active in the area of late.

Oracle in the fall said it would begin offering its full suite of software as a cloud service, and it also said it was buying customer-service software maker RightNow Technologies Inc. for $1.43 billion in cash.

The reality is that, in the software world, cloud wins," Canaccord's Davis said."You can argue about when everything will be instantly scalable public cloud, but the fact is that Oracle's Fusion applications are a pale comparison, functionality-wise, to the more advanced versions available from smaller specialist firms.

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