Trefis Helps You Understand How a Company's Products Impact Its Stock Price

COMPANY OF THE DAY : ALIBABA GROUP

Trefis is launching coverage of Alibaba with an $80 price estimate.

Alibaba Group, China's biggest e-commerce company, priced its IPO at $68 per share after the market close on Thursday. The company raised approximately $22 billion in total.

Alibaba has 80% share in China's e-commerce market and is the largest e-commerce firm in the world in terms of gross merchandise volume.

See Complete Analysis for Alibaba Group
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FORECAST OF THE DAY : VERIZON'S U.S. WIRELESS MARKET SHARE

According to a recent report by RootMetrics, Verizon's wireless network remains the best in the U.S. in terms of network speed, network reliability, call performance and data performance. The company's upgraded XLTE network allowed it to build a significant lead in terms of speed. We expect the carrier's network advantage to allow it to defend its market share amid increasing price competition from smaller rivals.

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RECENT ACTIVITY ON TREFIS

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Life Insurance Weekly Recap: AIG, MetLife
  • by , 15 hours ago
  • tags: AIG MET
  • The past week did not see much movement in the stock prices of life insurance companies AIG (NYSE:AIG) and MetLife (NYSE:MET).  There were changes to AIG’s leadership structure and MetLife presented at the Asia Investor Conference in Tokyo. Below we discuss the abovementioned events from the week ended September 19. AIG AIG announced a new leadership structure after Peter Hancock took over as CEO earlier in the month. While much of the company’s executive team remains the same, the company is hoping that the new structure will help to integrate the company’s various businesses and streamline its strategy. AIG’s stock was largely steady throughout the week, We have a price estimate of $52 for the company’s stock, which is slightly below the current market price. See our complete analysis of AIG here MetLife MetLife presented at the Asian Investor Conference held in Tokyo, discussing the importance of the Asian market and especially Japan going forward. Outlining its business strategy, the company emphasized the importance of emerging markets to its growth story. MetLife’s stock was up slightly for the week. We have a price estimate of $59 for the company’s stock. See our complete analysis of MetLife here
    MU Logo
    Micron: Factors Responsible For A 10% Increase In Our Valuation
  • by , 16 hours ago
  • tags: MU TXN SSNLF BRCM
  • Trefis recently increased its price estimate for memory chipmaker  Micron Technology (NASDAQ:MU) by over 10%, from $27 to $30. The primary reason for the upgraded valuation is our revised 2014 forecast for Micron’s gross margin. Revised 2014 Gross Margin Forecast We initially estimated Micron’s company wide gross margin to increase only marginally (0.5%) in calendar year 2014 (fiscal year ends in August). In our updated model, we expect the company to witness a much higher increase in gross margin (around percentage points) this year. For the first half of calendar year 2014 Micron reported gross margin of 34.3%, while for full year 2013 its gross margin stood at 25.8%. In our model we add back non-cash expenses (such as depreciation and stock-based compensation) to the reported gross profits, which gives us an estimated gross margin of 47.6% and 42.3% for the first half of 2014 and 2013, respectively. Higher Costs Can Impact Short Term NAND Gross Margin In its fiscal Q3 2014 (ended May),  Micron’s gross margin was stable compared to Q2 2014. Though DRAM revenue declined marginally sequentially, both average selling prices (ASP) and cost per bit decreased in the low-single-digit range, resulting in relatively stable DRAM margins compared to the last two quarters. On the Trade NAND side too, gross margins were stable in Q1 2015 with generally flat mix adjusted prices and costs. The company reported lower Trade NAND sales volume on account of higher SSD sales, which have a longer back end manufacturing cycle time. Based on the quarter-to-date ASP trend and projected mix for the quarter (Q4 2014), Micron estimates DRAM gross margins will be flat to up slightly, but Trade NAND gross margins will be down a couple of points. It expects DRAM bit production to be up low single digits, ASPs to be flat and cost per bit to be down low single digits. On the other hand, Trade NAND bit production is expected to be up low to mid-teens, with ASPs  down low to mid single-digits and cost per bit flat compared to Q3. Key factors affecting Micron’s guidance for lower NAND gross margins in Q4 2014 include an  increasing mix of high-density NAND sales at lower ASPs, continued growth in client SSD volumes with some initially higher costs that impact margins, and the effect of a legacy pricing arrangement with a customer that is trending lower through Q1 2015. Note: We assume that the gross margin for each product line is the same as the company-wide gross margin. Thus, we assume that the NAND gross margin increases at the same rate as the company gross margin. Micron believes that the favorable long-term outlook for the memory market will fuel its growth this year and beyond. With a large and diverse memory product portfolio across a number of end-market segments, and the second largest installed manufacturing capacity, it is in a strong position to benefit from the improving industry dynamics. Our price estimate of $22 for Micron is at a significant discount to the current market price. We are in the process of updating our valuation for the company.
    Week In Review: MSFT, IBM, HP
  • by , 17 hours ago
  • tags: HPQ IBM MSFT
  • While the AMEX Information Technology Index (NYSE:XIT), which is compromised of large cap technology stock listed on New York Stock Exchange, has been underperforming the broader technology market, NASDAQ 100 Technology Sector(NASDAQ:NDXT) has outperformed the broader markets. During the week, the XIT index underperformed the NASDAQ composite index by more than 6.5% and closed at 122.3, while NDXT outperformed the composite by 1.5% to close at 2265. In this report, we discuss some of the key events from the past week for  Microsoft Corporation (NASDAQ:MSFT) and International Business Machine (NYSE:IBM) and Hewlett-Packard Company (NYSE:HPQ). Microsoft Corporation Microsoft was in the news for announcing the acquisition of Swedish game developer Mojang, the maker of popular game Minecraft, for $2.5 billion. Microsoft plans to bring Minecraft, which is one of the biggest game on its X-Box console, to Window phones, and hopes to boost the Windows ecosystrem. Additionally, it continues to restructure its business by laying off employees from units where it deems necessary. In the latest round of layoffs the company has cut close to 2100 jobs worlwide. We have a  $44.28 price estimate for Microsft, which translates to a market cap of around $366 billion. Our price estimate represents a slight downside to the current market price. We estimate the company’s Calender Year 2014 EPS at around $2.72 (Company has financial year ending in June), compared to a consensus estimate of around $2.69 according to Reuters. IBM IBM’s stock was trading in a narrow range of $189-$192 during the month. However, the stock price did rise in the last two days of trading as the big blue unveiled Watson Analytics, which uses its high-end Watson computing platform, for the big data and cloud market. Although, it is too early to comment on the new offering, we expect this product to fillip IBM’s cloud revenue in the future as more companies look to adopt the services. In other news, IBM cut salaries for workers who need additional training to stay relevant in the tech industry. This move will not only reduce cost for IBM but also motivate employees to stay current with the changes in skill requirement in the Tech domain Our valuation of $227 (market cap of $237 billion ) for the company is 15% above the current market price of $194 (market cap of $203 billion). We expect IBM to report revenue of around $101 billion and net income of $16.87 billion for 2014. We forecast non-GAAP diluted EPS of $16.75, which is below the market consensus of $18.41 (Reuters). HP Hewlett-Packard Company’s stock has been on a tear for the past month. This week was no different as the stock price rose to $37 after a tempered start in the week. During the week, the company announced new suite that would helping Agile development teams to accelerate application development, and provide quality service via a simple and scalable cloud-based platform. Our valuation of $29.79 (market cap of $55.7 billion ) for the company is 20% below the current market price of $37 (market cap of $69.3 billion). We expect HP to report revenue of around $115 billion and net income of $6.1 billion for calendar year 2014. We forecast non-GAAP diluted EPS of $3.2, which is below the market consensus of $3.6 (Reuters). Understand How a Company’s Products Impact its Stock Price at Trefis View Interactive Institutional Research (Powered by Trefis): Global Large Cap |  U.S. Mid & Small Cap |  European Large & Mid Cap More Trefis Research  
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    Credit Card Company Weekly Notes – American Express, Visa, Discover Financial
  • by , 17 hours ago
  • tags: AXP DFS V
  • Credit card company stocks, including  American Express (NYSE:AXP), Visa (NYSE:V) and Discover Financial (NYSE:DFS), traded in positive territory during the week ended September 19. Below we look at the performance of these companies for the week gone by. American Express AmEx’s U.S. Small Merchants Group partnered with several retail startups – BirchBox, Bonobos and Rent the Runway – for a two day event involving a thought leadership panel and a shopping event. The objective of the event was to highlight innovations in e-commerce and how those have been successfully brought into the physical world. AmEx aims to bring expertise from industry leaders and seasoned entrepreneurs to small merchants by organizing such events. This past week AmEx’s stock increased slightly; we have a price estimate of $104 for the company’s stock, translating into a valuation of $109 billion. The company had $33 billion in revenues in 2013, and in the first half of 2014 revenues have been above $17.5 billion. We forecast the company to end the year with over $35 billion in revenues. See our complete analysis of AmEx’s stock here Visa Visa announced that it would review its 5.5% holding in British mobile payment company Monitise. Visa in 2009 entered into a commercial alliance with Monitise and also invested in the company. Monitise will be providing its mobile payments platform to Visa through 2016, as per the original agreement. Visa has hired J.P. Morgan (NYSE:JPM)) to explore options that can be exercised with regard to the investment.  We have a price estimate of $217 for Visa’s stock, which is in line with the current market price of $216. Visa’s stock was largely flat in the previous week. Our valuation for Visa implies a market cap of $166 billion. See our full analysis of Visa here Discover Financial Services Discover reported monthly credit card charge-off rates and delinquency rates for the twelve months ended August 31. On a monthly basis over the period, Discover’s net principal charge-off rate (the percentage of loans considered nonredeemable) had a median of 2.2%, ranging between 1.9-2.5%. The delinquency rate (30 day period) was steady at 1.7% for most months, varying by only 0.1% in a few months over the twelve month period. Discover’s stock was up slightly last week. We have a price estimate of $64 for the company’s stock, translating into a valuation of nearly $30 billion. Our EPS estimate of $5.07 for the company is slightly lower than the consensus EPS of $5.32 for 2014. We expect the company to report approximately $8.5 billion in revenues in 2014, around 3% higher than in the previous year. See our complete analysis of Discover Financial here
    UAL Logo
    Airlines Week In Review: United & JetBlue
  • by , 17 hours ago
  • tags: UAL
  • In the past week, United (NYSE:UAL) offered a voluntary severance package to its flight attendants, as the carrier is seeking to reach a single bargaining agreement which covers all its flight attendants. United also announced to add 50 Embraer E175 jets to its fleet in an effort to improve the fuel efficiency of its fleet. Separately, JetBlue (NASDAQ:JBLU) announced a new CEO, Robin Hayes, who will succeed the company’s current CEO and founding team member, Dave Barger. United On Monday, September 15, United announced that it is offering a voluntary severance package to its approximately 23,000 flight attendants. The carrier said that it will make a lump sum payment of up to $100,000 to flights attendants who choose to leave the company. Currently, United is seeking to reach a joint collective bargaining agreement which covers all its flight attendants. The carrier’s flight attendants are currently represented through two separate contracts which are a legacy of the pre-merger days of United and Continental. United has been able to sign unified contracts featuring a single seniority list with most of its employee groups including pilots, dispatchers and storekeepers, but the carrier is yet to reach a similar agreement with its flight attendants and technicians. The company believes that this voluntary severance package will help it achieve the objective of a unified joint collective bargaining agreement with its flight attendants. United hopes to attract at least 2,100 flight attendants through this offer. Additionally, Wednesday, September 17, United announced to add 50 Embraer 175 regional jets to its fleet, in addition to the 70 E175s that the carrier is already adding to its fleet. Deliveries against this new order will begin in 2015 and continue through mid-2017. These E175s, which seat 76 passengers, are replacing older, less cost-efficient 50-seater regional jets in United’s fleet. Therefore, we figure this fleet restructuring will help lower United’s operating costs going forward. See United’s Fleet Restructuring Will Add Growth To Its Earnings . - We currently have a stock price estimate of 45.20 for United, approximately 10% below its current market price. - United’s stock price has fallen by nearly 2% over the past week. - We currently estimate United to post earnings of $4.44 per share in 2014, compared with its consensus earnings of $4.55 per share. See our complete analysis of United here JetBlue Separately, Thursday, September 18, JetBlue announced that its current CEO, Dave Barger, will step down in February next year. Dave is a founding member of JetBlue and has led the airline as its CEO since early 2007. He will be replaced by Robin Hayes, who is currently JetBlue’s President and has occupied the position of Executive Vice-President and Chief Commercial Officer in the past. We figure as the carrier is in solid shape financially, posting steady growth in passenger traffic, revenue and profit, this is a good time for leadership change. - We currently have a stock price estimate of $12 for JetBlue, around 5% ahead of its current market price. - JetBlue’s stock price has fallen by nearly 10% over the past week, primarily due to a downgrade Monday, September 15, from Neutral to Underperform by a Bank of America analyst. - We currently estimate JetBlue to post earnings of 71 cents per share in 2014, compared with its consensus earnings of 68 cents per share. See our complete analysis of JetBlue here View Interactive Institutional Research (Powered by Trefis): Global Large Cap |  U.S. Mid & Small Cap |  European Large & Mid Cap More Trefis Research
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    Cisco Expands Intercloud Architecture With Metacloud Acquisition
  • by , 18 hours ago
  • tags: CSCO JNPR
  • Cisco (NASDAQ:CSCO) recently announced its intent to acquire private cloud provider Metacloud, in an effort to bolster its global Intercloud platform and architecture. Metacloud provides private cloud solutions to organisations with its OpenStack-as-a-service model, delivering ready-to-use private clouds in clients’ data centers. The deal is expected to close by the end of the ongoing quarter (Q1 FY2015) and upon completion of the acquisition, Metacloud’s employees will join Cisco’s Cloud Infrastructure and Managed Services business division. Cisco’s Cloud Services architecture is also based on OpenStack open source software and is designed to help customers to easily and securely use data across both private and public clouds. The acquisition is likely to provide a boost to Cisco’s plans to build the world’s largest Intercloud, which is a secure network of globally distributed and remotely managed clouds capable of meeting growing customer needs, especially as part of the Internet of Everything (IoE). Intercloud is part of the company’s Data Center division, which has witnessed rapid sales growth in the last couple of years. Divisional sales grew by about 60% year-over-year in FY2013 and over 27% in FY2014 on the back of solid expansion in the company’s Unified Computing System products as well as cloud offerings. We have a  $27 price estimate for Cisco, which is slightly ahead of the current market price.
    CBS Logo
    Weekly Media Notes: CBS And Media General Ink Long Term Affiliate Deal
  • by , 18 hours ago
  • tags: CBS DIS VIA TWX
  • Last week saw a development in the media industry with CBS renewing all affiliation agreements with Media General. CBS is also benefiting from its Thursday Night Football coverage and scored high ratings in the premiere week. We believe this will aid CBS’ advertising revenues in the second half of 2014. Media giant Disney has recently announced the arrival of its  Frozen attraction at The Walt Disney World Resort. We believe it is a good move as  Frozen has been a phenomenal success story for Disney and it can help attract more guests to its theme park. On that note, we discuss below these developments related to CBS and Disney over the last week or so.
    RAD Logo
    Rite Aid Falls Despite A Strong Q2'15 As It Lowers Its 2015 Guidance
  • by , 18 hours ago
  • tags: RAD CVS WAG
  • The third largest drugstore chain in the U.S., Rite Aid (NYSE: RAD) reported its eighth consecutive quarter of profitable growth in net income as well as adjusted EBITDA.  And it posted significant increases in its same-store-sales and prescription count in Q2 2015. However, the company’s stock price has declined by 18.5% because management lowered its fiscal 2015 guidance (mentioned at the end of the article), mainly due to an anticipated decline in reimbursement rates and lower profitability from generic drugs in the second half of the fiscal. Quick Snapshot of Q2 2015 Earnings At $6.5 billion, Rite Aid’s Q2 2015 revenue witnessed a 3.9% annual increase mainly on account of higher pharmacy sales. Pharmacy same-store sales increased 5.6%. Net income for the quarter was $127.8 million ($0.13 per diluted share) compared to net income of $32.8 million ($0.03 per diluted share) in Q2 2014. Higher utilization in Medicaid expansion states and the result of Rite Aid’s pharmacy initiatives led to a 4.1% growth in total comparable store sales. Front-end same-store sales increased by 1.1%. Rite Aid continues to focus on its store re-modeling initiative, efficient cost management and customer loyalty programs to spur its future growth. Controlling costs and making operational progress remain key focus areas for the company. In addition to expanding its healthcare offering, Rite Aid is making progress in building up its real estate pipeline to execute its relocation and new store program over the next several years. As of August end, Rite Aid operated 4,572 stores. View our detailed analysis for Rite Aid Pharmacy Margins To Decline In The Second Half Of Fiscal 2015 Rite Aid’s gross margin in the quarter improved marginally, from 28.9% in Q2 2014 to 29.0% in Q2 2015, due to the favorable impact of the inventory valuation related to the transition to its new drug purchasing and delivery arrangement with McKesson.  Pharmacy gross profit dollars in Q2 2015 were higher but the margin rate was lower, compared to Q2 2014. Pharmacy gross profit was positively impacted by both a higher prescription count and the benefits of the purchasing agreement with McKesson; on the other hand, it was negatively impacted by continued reimbursement rate pressure. Based on the current estimates for reimbursement rates, anticipated lower profitability due to a delay in the introduction of a generic equivalent to Nexium, and higher costs for generic drugs that recently lost their exclusivity, Rite Aid expects the pharmacy gross margin in the second half of fiscal 2015 to decline compared to the same period last year. The company has accordingly lowered its guidance for adjusted EBITDA, net income and earnings per diluted share. Agreement With McKesson Will Increase RiteAid’s Purchasing Power Rite Aid recently announced an expanded tie-up with McKesson Corporation (MCK), the largest distributor of pharmaceutical and medical supplies in the U.S., to source and distribute generic pharmaceuticals for Rite Aid. It claims that the continued implementation of its new drug purchasing and distribution process with McKesson was one of the most significant initiatives it focused on in Q2 2015. Rite Aid has now completed the conversion of all its stores and four pharmacy distribution centers to this new distribution process. The company believes the new process will provide it with working capital benefits and improved customer service through a better in-stock position. The agreement with McKesson, which has been extended until March 2019, is expected to lower the purchasing cost of generic drugs for Rite Aid, providing the company with long term drug savings. The expanded partnership offers significant working capital benefits by providing Rite Aid pharmacies with direct to store delivery five days a week. Rite Aid believes the partnership will allow it to achieve supply chain efficiencies and derive additional cash flow to fuel long term growth. It claims that the agreement is generating purchasing savings that are in line with its expectations. Rite Aid on a standalone basis has an estimated generic purchasing power of $1.5 billion, which is significantly lower than its peers. Revised Fiscal 2015 Guidance - Total sales between $26.0 billion and $26.3 billion vs its previous guidance of $26.0 – $26.5 billion. - Same-store-sales to increase 3% to 4%. - Adjusted EBITDA to be between $1.20 billion and $1.28 billion, compared to its initial estimate of $1.28–$1.35 billion. - Net income in the range of $223 million to $333 million, as compared to the initial guidance of $298 – $408 million. - Earnings per diluted share between $0.22 to $0.33, down from the earlier forecast of $0.30 to $0.40. - Capex of $525 million. See More at Trefis | View Interactive Institutional Research (Powered by Trefis) | Get Trefis Technology
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    Industrials Week In Review: Johnson Controls, 3M and Caterpillar
  • by , 18 hours ago
  • tags: MMM CAT JCI
  • During the past week we saw Johnson Controls (NYSE:JCI) reorganize its Building Efficiency segment in a bid to position it for profitable global growth. 3M’s (NYSE:MMM) Listeria monocytogenes test kit received AOAC approval, which indicates that the test kit is better or equivalent to the present standard method. Caterpillar’s (NYSE:CAT) stock continued its downward movement due to negative investor sentiments driven by the declining revenues of its Resource Industries segment. Johnson Controls reorganizes Building Efficiency business Johnson Controls recently announced that it will be reorganizing its Building Efficiency segment, which deals with HVAC equipment and controls and facilities management, to better align the division with the company’s long-term strategies. The North American branch of the business will now be separated from the global products business and will continue to operate in its present form, providing HVAC systems and solutions to customers in the U.S. and Canada. Johnson Controls has been actively involved in beefing up its Building Efficiency business. During the third quarter fiscal year 2014, Johnson Controls completed its acquisition of Air Distribution Technologies (ADT), which is one of the largest providers of air distribution and ventilation products for buildings in North America. We believe that ADT will provide growth opportunity for Johnson Controls’ Business Efficiency segment by adding new products to its existing HVAC portfolio. In the near term, this acquisition will likely help lift the company’s revenues through cross-selling opportunities. We currently have a price estimate of $52 for Johnson Controls, approximately 12% higher than its current market price. We estimate revenues of $44.1 billion and EPS of $3.25 for this fiscal year. Click here to see our complete analysis of Johnson Controls 3M’s Listeria monocytogenes test kit receives AOAC approval 3M’s Food Safety business, which makes products that make it faster and easier for food processors to test the microbiological quality of food, recently announced that it’s 3M Molecular Detection Assay Listeria monocytogenes received approval from the Association Of Analytical Communities (AOAC), a non-profit scientific association which publishes standardized chemical analysis methods. The test kit provides results in 24 hours, much earlier than the present standard method. 3M’s Food Safety business is a part of its Health Care segment which generates around 17% of the company’s overall revenues. We currently have a price estimate of $142 for 3M, approximately 3% lower than its current market price. We estimate revenues of $32.34 billion and EPS of $7.39 for this fiscal year. Click here to see our complete analysis of 3M Caterpillar’s stock continues to fall Caterpillar’s stock continued its downward momentum during the week falling 1.18%. On Wednesday, September 17, 2014, Caterpillar was the leading laggard on the Dow Jones Industrial Average with its stock price declining 0.83% to $103.99. Caterpillar was the leading laggard on the DJIA on September 10, 2014 as well. The continued decline in Caterpillar’s stock price is being driven by the suppressed demand from the mining industry which led to a 37.3% year-on-year decline in 2013 for the company’s Resource Industries revenue. We currently have a price estimate of $109 for Caterpillar, approximately 5% higher than its current market price. We estimate revenues of $55.93 billion and EPS of $6.15 for this fiscal year. Click here to see our complete analysis of Caterpillar View Interactive Institutional Research (Powered by Trefis): Global Large Cap |  U.S. Mid & Small Cap |  European Large & Mid Cap More Trefis Research
    ORCL Logo
    Oracle: Weak Hardware And New License Sales Dim Earnings Report As Management Changes Loom
  • by , 18 hours ago
  • tags: ORCL SAP CRM
  • Fiscal first quarter results for database leader Oracle Corp. (NYSE:ORCL) trailed consensus estimates. (Fiscal years end with May.) Q1’15 revenues stood at $8.6 billion against consensus estimates of $8.77 billion. This represents a year-on-year growth rate of 3%, lower than its quarterly guidance of 4%-6%. Cloud revenues registered robust growth while sales from new software licenses and hardware products declined on a year-on-year basis. Oracle’s quarterly earnings per share stood at $0.62, at the lower end of its quarterly guidance and lower than analyst estimates of $0.64. The company announced a shuffle in its top management roles along with the earnings release, with Chief Executive Officer (CEO) Larry Ellison being appointed as Chief Technology Officer (CTO) and the Executive Chairman.Mark Hurd and Safra Catz, who held President roles previously, would be serving as co-CEOs. Manufacturing, legal and finance teams at Oracle will report to Safra Catz while sales and service teams and vertical industry business units will report to Mark Hurd. Ex-CEO Larry Ellison is reported to oversee the software and hardware engineering functions . In this earnings note, we highlight key takeaways from Oracle’s Q1FY15 results. We are currently revising our $46 Trefis price estimate for Oracle to incorporate the latest quarterly results. See Our Complete Analysis For Oracle Cloud Subscriptions Grow Faster; Guidance Looks Optimistic In the first quarter, Oracle’s cloud sales grew 31% to reach $475 million, compared to $363 million in Q1FY14. Revenues from Software-as-a-Service (SaaS) and Platform-as-a-Service (PaaS) increased 32% to $337 million this quarter. Additionally, this strong growth in the SaaS and PaaS units was supported by strong growth in Infrastructure-as-a-Service (IaaS) sales during the quarter. Oracle’s IaaS business, which competes with Amazon’s Web Services (AWS) to provide on-demand server and storage space to businesses, expanded 26% year-on-year to reach $138 million. More importantly, Oracle’s rapid growth in cloud sales resulted from new customer wins. The company reported a 54% growth in bookings for the quarter, with bookings from Oracle Fusion apps, Enterprise Resource Planning (ERP), Human Capital Management (HCM) and Sales Force Automation (SFA) growing triple digits in Q1’15. Over the quarterly period, the company added more than 500 new customers for its cloud business, with its Human Capital Management (HCM), Customer Experience (CX) and Digital Marketing modules being the largest beneficiaries of new customer accounts. The company expects strong cloud revenue growth going forward. SaaS and PaaS sales for Q2’15 are expected to grow between 39% and 44% on a constant currency basis. Similarly, IaaS revenues are expected to grow between 40% and 44% next quarter. As things stand, Oracle expects an annual cloud run-rate of nearly $2 billion. However, an acceleration in growth in future quarterly periods should take this run-rate higher. New Software License Sales Decline Again; Hardware Sales Disappoint First quarter sales for new licenses stood at $1.37 billion, 2% lower (~$30 million lower) than its Q1’14 sales of $1.4 billion. Oracle’s new license sales for Q1’15 represent approximately 16% of total quarterly revenues.  Comparatively, new license sales as % of total quarterly revenues stood at 20% in Q1’14, reflecting the stronger growth of the On Demand side of the business. In part, we believe this decline in new license sales was due to the migration of new customers from an on-premise deployment model onto a cloud system. During the same year-over-year period, Oracle’s cloud subscription sales increased nearly $110 million. Going forward, Oracle expects the movement to the cloud to grow further. The company expects overall software and cloud revenues (which include new license, support and cloud) to grow between 3% and 6% for Q2’15. Given the strong growth rates expected in its cloud business, and with support revenues growing 6%-7% every quarter, we expect new license sales to continue to decline in Q2’15. On the hardware front, Oracle’s new product revenues declined 14% to $578 million. Hardware support sales also declined 1% to $587 million for the quarter. While the high-end engineered systems, which now accounts for a third of hardware product sales, continued to grow at double digit pace, other server and storage systems witnessed a sharp slide in demand. Sales from Oracle’s SPARC systems declined this quarter while storage systems, particularly the tape storage system, under-performed. Additionally, a new product release from Oracle’s Sun Storage Archive Manager (SAM), due to launch at the Oracle OpenWorld Conference, also contributed to weak hardware sales this quarter. However, we believe weak demand for SPARC servers and Tape storage systems had a bigger impact than product launch of Oracle’s Sun SAM on the hardware division. For the next quarter, Oracle expects overall hardware sales to decline between 0%-10% on a year-on-year basis. Global Large Cap | U.S. Mid & Small Cap | European Large & Mid Cap More Trefis Research
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