Oracle's earnings report March 26, which came in at the low end of guidance and under analyst expectations, spooked Wall Street and suggested that the U.S. economic downturn is having a deleterious impact on Oracle's strategy of buy-'em-as-it-sees-'em.
Oracle reported fiscal third-quarter 2008 license revenue of $1.62 billion and total revenue of $5.37 billion, below analyst estimates of earnings between $1.68 billion and $5.4 billion. The hardest-hit segment for Oracle in its three-pronged business portfolio of database, middleware and applications was applications, where the company has made the bulk of its acquisitions. Oracle reported $451 million in application sales for the quarter, well below the analyst consensus of $533 million in sales.
"On license, we were within our guidance range, but customers got a little more cautious at the end of the quarter, given what was going on in the financial markets," Oracle Chief Financial Officer Safra Catz said during the March 26 earnings call with analysts. "Deals are getting done, although they took a bit longer than anticipated in the last few days of the quarter."
Acquisitions come under scrutiny
While analysts agree that Oracle's missed numbers are mostly the result of the faltering U.S. economy, the slip led some to suggest that Oracle's acquisitions strategy could make prediction difficult in the future.
"Oracle continues to be significantly acquisitive, which could result in actual financial results meaningfully deviating from published forecasts," wrote Charles Di Bona, an analyst at Bernstein Research, in a March 27 research note. "Slowing growth in the company's core database market could also impact results and cause them to deviate from expectations. Furthermore, Oracle intends to be more acquisitive in the coming years, and a succession of large transactions could add to Oracle's risk portfolio and make it more difficult to forecast the true growth rate of the company."
Reuters reported March 27 that Oracle's revenue shortfall led to a technology sector sell-off based on concerns that the usually strong performer's results were a harbinger of things to come in business spending. Oracle, SAP and Google were among the major tech companies that saw a drop in their share prices following Oracle's earnings report the previous day.