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Oracle Revenue, Sales Guidance A Little Light

Oracle (ORCL) succumbed to a dour global economy in its fiscal first quarter, reporting an unexpected revenue drop late Thursday as profit just met expectations. The busi ness software giant also gave cautious guidance, even as it touted a strong start to its cloud offerings.

Oracle is the dominant provider of database, middleware and applications software. But Q1 isn't its strong time of the year, says Karl Keirstead, an analyst for BMO Capital Markets.

"August is their seasonally softest quarter just given the July-August lull in enterprise spend," he said. "Oracle does have meaningful European exposure, so that weighs on it as well.

Oracle earned 53 cents a share in its Q1 ended Aug. 31, up 10% vs. a year earlier and in line with expectations of analysts. A stronger dollar cut EPS by 3 cents.

Revenue of $8.2 billion fell 2% vs. $8.39 billion a year earlier. Analysts had expected $8.42 billion.

Oracle sees more of the same in the current Q2. It predicted EPS of 59-63 cents, bracketing analysts' estimate for 61 cents. Revenue should be flat to up 4%. Wall Street had expected a 5% gain to $9.22 billion.

Shares were little changed in late trading. They fell 1.6% to 32.26 during the regular session.

'Key Cloud Wins'

Oracle gave its first look into its push into cloud-based computing, which lets companies store and access data over the Internet. It's gotten more serious about this field with its recent $1.9 billion acquisition of Taleo, a talent management software firm.

Oracle said it brought in $222 million in cloud computing revenue. Co-President Mark Hurd on the post-earnings conference call cited "key cloud wins" in customer relationship management software where it vies with Salesforce.com (CRM) and human capital management software where rivals include SAP (SAP) and Workday. He provided a list of 15 new cloud customers including Adobe (ADBE), Barnes & Noble (BKS), Cisco Systems (CSCO), Cox Communications and Kraft Foods (KFT).

"This is just tremendous customer acceptance that we are seeing, and our pipeline and our team are still ramping," he said. "We expect we will be at or over a $1 billion run rate next quarter and we believe we have the people and the services to win a lot of business in the cloud.

Oracle's Q1 software revenue rose 4% to $5.71 billion. Revenue from new software licenses and cloud-based subscriptions was $1.57 billion, up 5% vs. a year earlier when it reported only software licenses. Software license update and product support revenue topped $4.14 billion up 3%.

Oracle is more than holding its own against rivals such as SAP, says Trip Chowdhry, an analyst for Global Equities Research.

"They are getting market share in both database and in applications," he said. "Behind that is that Oracle enjoys enterprise credibility: You won't be fired for putting a bet on Oracle but you will probably be fired for putting bets on alternate solutions.

Oracle's hardware business, which it entered by acquiring Sun Microsystems in January 2010, was a different story.

Total hardware systems revenue fell 19% vs. a year earlier to $1.35 billion, including a 24% drop in hardware products sales.

The hardware woes come as no surprise given Hewlett-Packard's (HPQ) problems, says Keirstead.

"The news coming out of HP on the server side has been extremely weak," he said. "Nobody was expecting good numbers from Sun.

Tibco Software (TIBX) fell late after the middleware maker reported weaker-than-expected revenue.