Market Shifts

Oracle Corp. reported strong results for the third quarter of its fiscal year 2011, as well as announced that it has decided to stop developing software for Intel Corp.'s Itanium chip. Meanwhile, Research In Motion Ltd. (RIM) reported that revenue from its latest quarter fell short of expectations, and warned that BlackBerry sales in the current three-month period are shifting to cheaper models.

Focal Points:

• Oracle reported that its net income for the third quarter 2011 rose 78 percent to $2.1 billion, helped by new software license sales and three full months of revenue from Sun Microsystems. According to the vendor, revenue from new software licenses rose 29 percent to $2.2 billion. Additionally, revenue from software license updates and product support increased 13 percent to $3.7 billion. Hardware systems revenue also rose to $1.7 billion, up from $458 million for the same quarter last year, Oracle said. The vendor also announced that total revenue for the quarter jumped 37 percent year-over-year to $8.8 billion from $6.4 billion. Moreover, revenue increased more than 30 percent in every region worldwide. Finally, Oracle reported that earnings per share increased 75 percent to 41 cents per share from 23 cents per share a year earlier. Excluding certain items, Oracle added that it earned 54 cents per share, exceeding Wall Street expectations.
• Oracle also announced that it has decided to stop developing software for Intel's Itanium chip. According to Oracle, Intel's management has expressed that the company's strategic focus is now on the x86 microprocessor, and as such, the Itanium is "nearing the end of its life." Paul Otellini, president and CEO of Intel, countered Oracle's statement. He said that the company remains "firmly committed to delivering a competitive, multi-generational roadmap for HP-UX and other operating system customers that run the Itanium architecture." Hewlett-Packard Co. (HP) reiterated that it will continue developing Itanium-based Integrity server platforms with its HP-UX operating system, using a roadmap that extends more than 10 years. Additionally, HP announced that it would continue to support customers running Oracle software on Itanium-based Integrity servers, both existing and future platforms, during the same timeframe.
• RIM reported mixed financial results for the fourth quarter 2011. Although earnings were in line with expectations, the company's outlook disappointed investors, sending its shares down. Net income for the quarter rose 31 percent to $934 million, or $1.78 per share, from $710 million, or $1.27 per share, a year earlier. Analysts, however, expected earnings of $1.75 per share, on average. RIM also reported that revenue for the quarter rose 36 percent to $5.6 billion, just shy of the $5.65 billion that Wall Street expected. For the current quarter, ending in May, RIM said that it expects earnings of $1.47 to $1.55 per share, below the average analyst forecast of $1.65 per share. These estimates are based on the company anticipating that cheaper phones will make up a significant portion of its sales in the quarter. Additionally, RIM will be spending more on research and development and sales and marketing, especially on the new PlayBook tablet, said the company. For the entire fiscal year, RIM expects earnings of $7.50 per share, well above the analyst forecast of $6.82 per share. Although the growth of BlackBerry sales has slowed in North America, overseas' sales are taking off, as corporations are only starting to put BlackBerrys in the hands of employees. Sales outside the old core markets of Britain, Canada, and the U.S. are now 52 percent of the total, the company added.

Experton Group believes Oracle had an impressive quarter even though it continues to show its disregard for customer requirements. The vendor grew its software revenues by 20 percent and its Sun hardware sales by about 25 percent (last year's quarter only included one month of revenue from Sun). The company's decision to stop development of software in support of Intel's Itanium chips will not net Oracle as much business as it believes, as the move is more likely to drives users away from Oracle than into its arms. Beneficiaries of this action will most likely be other competitors – both in the near term and over time. Experton Group wonders how much additional business Oracle would make if it were actually customer-friendly. On the other hand, RIM needs to play catch up with its smartphone capabilities to maintain market share in its core markets and prove it can garner a decent share of the tablet business. The company has pulled it out before but the stakes are higher this time; furthermore, some foreign governments may take away one of its advantages, as they seek to gain access to the data. IT executives using or intending to use Oracle software should realize that the company will use whatever tactic it can to acquire additional business. Caveat Emptor definitely applies. IT executives should also assume that RIM will be around for quite a while and even though it may have some tough sales days ahead, executives will not get burned for using the RIM platform.