As Goes Oracle, Technology Follows

Oracle (ORCL) reports earnings this week, among the most anticipated earnings events in the tech sector. And that's not just because Larry Ellison watching is so much fun. Rather, it's because the database and enterprise software giant is the rarest of birds, a tech bellwether that has remained relatively unscathed by the economic fallout from the Great Recession that has hammered makers of cell phones, PCs, telecom equipment and LCD TVs. Thus far, Oracle has managed to avoid major retrenchments in sales and has continued to boost profitability. Will Larry's streak continue? It's a critical question not just for Oracle but also for the rest of the sector.

That's because, as much as any other major tech player, Oracle is truly a canary in the silicon coal mine. Big ERP software companies, such as SAP, usually build their products on top of Oracle databases and middleware. Companies doing big Oracle installs often need to buy new servers from companies such as Dell (DELL), Sun (JAVA) and HP (HPQ), among others. And growth of database licenses is usually a strong underlying indicator for core economic growth because the growth of data has outpaced actual economic growth for some time now. Oracle management has carefully controlled expectations for the quarter, warning that the core database license business could decline by as much as 10%.

On March 19, sell-side brokerage Jefferies lowered price target for the stock from $20 to $18, which is still well up from current, post-rally levels at $15-$16, and earnings for 2010 revised downwards from $1.55. per share to $1.46 per share. All told analysts polled by Reuters remain bullish on Oracle. The Piqqem Sentiment for Oracle is a moderately bullish 213 (on a scale of 0-400) but has trended downward bearishly from 270 in Nov. 2008 - a large 57-point fall that would seem to presage diminished earnings. The whisper out of Silicon Valley is that Oracle will have a difficult quarter. Should Oracle whiff badly, it could translate into more pain for all of technology and therefore should be watched closely. All of that said, with Oracle's TTM PE running below five years lows at$15 and nearly $10 billion in cash on the books, Oracle looks like a solid prospect if one has a long time horizon. For the next few quarters, things could be mighty dicey indeed and that should trickle downhill further to the surrounding ecosystem.

Comments

[Lightway:]

SAP's preferred database and their official partner is actually IBM's DB2. Nevertheless, companies will still choose Oracle in large part because of perceived branding of Oracle as the strongest database.

Mar 20 01:08 PM