Oracle (ORCL) late Wednesday reported a decline in new software license revenue and its smallest percentage rise in EPS in three years, sending shares falling 8% in after-hours trading.
The company's fiscal Q3 revenue and revenue outlook for the current Q4 lagged Wall Street views. Q3 earnings per share missed, with EPS outlook in line.
Oracle's earnings per share minus items of 65 cents, up 4.8% from the year-earlier quarter, missed analyst expectations by a penny. Revenue fell 1% to $9 billion, where analysts polled by Thomson Reuters had expected $9.38 billion.
The company is "not at all pleased with our revenue growth this quarter," Safra Catz, Oracle's co-president, told analysts on a conference call. "What we really saw was a lack of urgency that we sometimes see in the sales force ... ." Sales reps, she said, "ran out of runway.
The tech bellwether said its new software license and cloud subscription revenue fell 2% to $2.33 billion, its first year-over-year decline in at least seven quarters.
In the last two years, Oracle has spent billions on acquisitions targeting newer markets such as network gear and cloud-based computing, as it battles IBM (IBM), Hewlett-Packard (HPQ) and a few other tech giants that aim to provide enterprises with all their hardware, software and service needs.
The longtime database leader and top seller of business software, along with rival SAP (SAP), is transitioning into cloud-computing software that users access via the Internet "cloud.
But that's not an easy information technology transition, says Trip Chowdhry, an analyst for Global Equities Research.
Will Not 'Set The Tone'
"Oracle will not set the tone in the new IT space," Chowdhry said. "There are new players emerging.
The Redwood Shores, Calif.-based company guided current quarter revenue to a range of a 1% decline from a year ago to a 4% gain. Analysts were expecting a 5% increase. Oracle sees EPS ex items of 85 cents to 91 cents, the midpoint matching analyst views of 88 cents, up 7%.
For Q3 ended Feb. 28, Oracle's hardware business — it bought server maker Sun Microsystems for $7.4 billion in 2010 — saw hardware product sales fall 23% to $671 million.
Hardware systems revenue, which includes related services and support, fell 16% from the year-earlier quarter to $1.24 billion. Hardware revenue has fallen sequentially six of the past seven quarters.
Shares of HP and SAP were down 1% and 2%, respectively, in after-hours trading Wednesday, after Oracle's report, while IBM was down nearly 1%.
On the conference call, Oracle CEO Larry Ellison said a turnaround is coming in hardware, but not this quarter.
"We expect a turnaround to begin in Q1, not in Q4 because we have (a) large introduction of new systems.
Oracle's growth prospects depend on how fast it can evolve from older software infrastructures to cloud computing, says Leigh Drogen, chief executive of Estimize, a data platform for financial estimates of publicly traded companies.
"Their destiny is going to rest on getting everything into the cloud," he said. "That's got to be their main focus, and that is probably their toughest thing to do.
Oracle has made many changes in the field focused on "increasing our win rate in the cloud," Ellison told analysts. "That is growing very, very nicely. The problem is it's still a relatively small business" for Oracle.
The company's shares had been up 21% since mid-November through the close of Wednesday's regular session, where Oracle shares rose a fraction.
The company's database leadership gives some comfort to investors, says analyst Chowdhry.
"In the very highly volatile macro conditions, Oracle has a steady revenue stream," he said.
The company's most recent acquisition is Acme Packet, a maker of network gear for handing voice, video and other communication systems. Oracle announced that pending $2.1 billion deal last month.
For the quarter, total software revenue rose 4% to $6.7 billion.