The US tech sector got a dose of good news last week from enterprise vendors including Oracle and Red Hat, which offered up some solid financial reports even as analysts continued to downgrade forecasts for IT spending this year.
Shares of software vendors helped push up computer stocks on the tech-heavy Nasdaq Friday. In afternoon trading the Nasdaq computer stock index rose 9.27 points to 1552.85. Red Hat jumped by $1.67 to $54.63; Microsoft rose $0.31 to $30.44; and Oracle was up $0.12 to $27.94.
Oracle's financial statement is often considered the unofficial start to the tech earnings season. IT market watchers were hoping for Oracle to provide some relief to bad economic news, which this week included a downgrade by Moody Investors Services of its ratings for some of the US' biggest banks and reports that Spain needs even more cash to shore up bank debts.
Oracle did not disappoint. For the quarter ending 31 May, Oracle on Tuesday reported that net income rose year over year by 8% to $3.5 billion, while revenue increased by 1% to $10.9 billion.
The problem with Oracle's revenue growth is that much of it has come from acquisitions, to the extent that it is difficult to tell how much headway is being made by its core products.
Oracle co-President Mark Hurd addressed the issue. "We have the best product lineup in the industry, a great pipeline and sales resources to drive even more organic growth," Hurd said on the call, according to a transcript supplied by Seeking Alpha.
"It was strength in CRM [customer relationship management], strength in ERP [enterprise resource planning], strength in HCM [human capital management]. So it was broad-based," Hurd added. "And by the way, that includes Europe."
This is what many analysts wanted to hear.
"Oracle's results, in our opinion, support our independently derived view that IT buyers are not panicking and they are not slashing budgets - this includes deservedly maligned Europe," said Canaccord Genuity analyst Richard Davis in a research note. "The fact is that most of the large corporations in Europe to whom public software companies sell have revenue mixes that are global, not fixed in Europe."
Red Hat, the enterprise Linux and middleware vendor, also had good news, reporting quarterly revenue of $314.7 million, up 19% year over year. Net income for the quarter was $37.5 million, compared with $32.5 million earlier this year.
Though Red Hat is much smaller than Oracle, it nevertheless acts as a barometer for the enterprise market. For example, a day after its financial announcement, it announced the release of Red Hat Enterprise Linux (RHEL) 6.3, a tweak of its enterprise-grade Linux distribution that aims at large cloud deployments.
Digital media vendor Adobe also had strong revenue growth, announcing that sales for the period ending 1 June rose 10% year-over-year to $1.124 billion. The company credited the results to a successful launch of Creative Cloud and Creative Suite 6, strong Acrobat revenue and 35% year-over-year revenue growth in its Digital Marketing Suite business.
However, Adobe also reported a year-over-year dip in net income for the period, from $229 million to $224 million.
And for fiscal year 2012, the company narrowed its annual revenue growth target to a range of 6% to 7%, compared to its prior target range of 6% to 8%. "These targets reflect a weaker demand forecast in Europe," it said in a statement.
Despite the good news from at least some of the bigger vendors this week and the upbeat note from Canaccord Genuity, the Europe sovereign debt crisis is bound to cast a pall over sales outlooks for some time.
Gartner lowered its forecasts on global spending on business applications last week. While the firm had previously predicted a 5% uptick this year, it now expects applications spending to rise 4.5% from last year's $115.2 billion total.
For its part, Forrester said that IT spending in Europe will flatten out. "The most likely result is either near-zero growth or economic recession in 2012, depending on the country," Forrester analyst Andrew Bartels wrote.
As Oracle co-President Safra Catz said on the company conference call this week, addressing a question on the macro economy and Europe's outlook: "We have not become economists this quarter, and we don't have any idea what's going to happen."
IDG News Service