Oracle Earnings Preview: What We’re Watching

Oracle (NASDAQ:ORCL) will report its Q2 FY12 earnings on December 20. Oracle has reported a steady increase in revenue in the last four quarters despite enterprise spending being impacted by the European debt crisis. Since more than a third of Oracle’s total revenues come from Europe, we will closely watch for signs of any slowdown in revenue growth. Oracle has also been trying to improve its hardware gross margins, since it acquired Sun Microsystems, as well as hardware sales. We will also be looking at its cloud strategy, now that it has finally set its sights on the rapidly growing cloud-based enterprise software market, where it will compete with Salesforce.com (NYSE:CRM), SAP (NYSE:SAP) and Microsoft (NASDAQ:MSFT).

We currently have a $40 Trefis price estimate for Oracle, which is around 25% above the current market price.

Check out our complete analysis of Oracle.

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Increasing Focus on Cloud-based Software

Oracle has been on an acquisition spree in the last quarter. It made three major acquisitions – GoAhead Software, which specializes in the development of service availability software for the telecom industry; Endeca Technologies, which develops software for unstructured data management, web commerce and business intelligence solutions; and most importantly, RightNow, a leading provider of cloud based customer service. Thanks to these acquisitions, we expect Oracle to increase its market share in database software, and also capture a larger portion of the cloud-based software market. Oracle’s new Public Cloud offering should also help it gain a foothold in the on-demand software market. We will watch for any numbers related to its cloud based software products in the earnings call.

Hardware Gross Margins Expected to Rise

Oracle has been trying to streamline its enterprise server hardware business since it acquired Sun. It has been improving its gross profit margins every quarter since, at the expense of top-line growth, as it phases out low-margin legacy hardware. Its gross margins improved from 48% to 54% in a year, and we expect them to increase further. We will be looking specifically at sales of its Exadata servers, which will drive revenue growth going forward.

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