Trying to Keep the SUN Shining
Somnath is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Since acquiring Sun Microsystems, Oracle Corporation (NASDAQ: ORCL) has been on the path to create high-performance machines to run its core database software products. Oracle acquired Sun Microsystems, the world's No. 4 maker of server computers and also the developer of Java and Solaris software, for more than $7.4 billion in 2010. The challenge has been to win customers for its new data appliances faster than customers scrapped the legacy.
The SUN effect
Oracle enjoyed margins of over 40% before acquiring the Sun hardware business. The company said it was enjoying more than 100% growth in demand for its Exadata family of engineered computer systems but the overall 24% decline in hardware revenue showed "its commodity Sun business is deteriorating faster than expected.” Sales of the former Sun products like servers and storage systems fell 16% in the May quarter.
The company has said it expects increased sales of engineered systems would offset declines elsewhere to return its hardware business to positive growth by the end of fiscal 2013 next May.
For the quarter ended Aug. 31, Oracle reported a profit of $2.03 billion. Excluding stock-based compensation, restructuring costs and other expenses, adjusted per-share earnings rose to 53 cents from 48 cents. Revenue fell 2.3% to $8.18 billion. Operating new license revenue, an important measure of software growth, jumped 5.1%. Total software revenue rose 3.5%, while hardware-systems revenue dropped 19%.
The other movers and shakers
In a very competitive market with a very strong demand, rivals including Cisco Systems, Dell, Hewlett-Packard, and IBM are taking market share away from Oracle in the computer market.
Cisco Systems (NASDAQ: CSCO) is the world leader in designing, developing, and marketing internet network equipment. The Company provides a line of products for transporting data, voice, and video within buildings, across campuses, and around the world. Its products are designed to transform how people connect, communicate, and collaborate. Its products are installed at enterprise businesses, public institutions, telecommunications companies, commercial businesses, and personal residences. The Company’s product offerings fall into three categories: its core technologies, routing and switching; advanced technologies, and other products. In addition to its product offerings, the Company provides a range of service offerings, technical support services and advanced services. The advanced services program supports networking devices, applications, solutions, and complete infrastructures.
Cisco Systems announced that for the first quarter of 2013, it expects revenue growth to be in the range of 2% to 4% on a year over year basis and non-GAAP earnings per share (EPS) to be in the range of $0.45 to $0.47 per share. The Company reported revenue of $11.256 billion in the first quarter of 2012. The company announced quarterly dividend of $0.14 per common share, an increase of 75% declared by Board of Directors on August 14, 2012.
International Business Machines (NYSE: IBM) s an information technology (IT) company. IBM operates in five segments: Global Technology Services (GTS), Global Business Services (GBS), Software, Systems and Technology, and Global Financing. GTS primarily provides IT infrastructure services and business process services. GBS provides professional services and application management services. Software consists primarily of middleware and operating systems software. Systems and Technology provides clients with business solutions requiring advanced computing power and storage capabilities. Global Financing invests in financing assets, leverages with debt and manages the associated risks.
IBM announced first quarter 2012 earnings of $2.61 per share, compared with diluted earnings of $2.31 per share in the first quarter of 2011, an increase of 13%. Net income for the quarter was $3.1 billion compared with $2.9 billion in the first quarter of 2011, an increase of 7%. But total revenues for the first quarter of 2012 were flat at $24.7 billion compared to the first quarter of 2011.
"In the first quarter, we drove strong profit and earnings per share growth. We delivered another excellent software performance, expanded services margins, and continued the momentum in our growth initiatives," said Ginni Rometty, IBM president and chief executive officer. "Our investments in growth market countries continued to generate strong revenue growth across software, hardware and services while contributing to the company's ongoing margin expansion.
Based on the overall quarterly performance, though, IBM raised its 2012 full year operating earnings per share expectations to at least $15.00.
All the three companies are expanding aggressively outside its software business to add cloud applications and social media to its offerings. Investors pay close attention to new software sales because they generate high-margin; long-term maintenance contracts and is an important gauge of the company's future profits.
The SUN will always shine
For Oracle, shares initially fell following the earnings report but were flat in recent times. Through the close, the stock has climbed 26% since the start of the year. I find no reason why Oracle can't get to the pre-Sun operating margin. I strongly believe the Oracle stock will rise considerably in future as they try to keep the SUN shining.
SomnathGuha has no positions in the stocks mentioned above. The Motley Fool owns shares of International Business Machines and Oracle. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.