Oracle earnings lift stock, but doubts linger
SAN FRANCISCO (MarketWatch) --
Oracle (ORCL) beat Wall Street's estimates for its fiscal fourth-quarter, sending its shares up 3.1% to close at $27.96. The stock is up 9% for the year to date, but has fallen 6% over the last three months.
The early release of results did not completely erase doubts about the company's ongoing struggle to adapt to a changing market in corporate IT, where rivals now offer businesses access to software applications at a lower cost.
The pressure on Oracle shares was sparked by speculation of a major sales reorganization in the wake of a reported departure of a veteran executive, Keith Block, who was head of the company's North America sales operations.
Block's instant messages blasting Oracle's hardware business and co-President Mark Hurd had created a stir, which some analysts said could be disruptive to the company. Read more about the controversial messages out of Oracle.
Oracle acknowledged Block's departure to analysts and unveiled some changes, but sought to play down their significance. "We're lining up to drive even more growth," Hurd said on the call with analysts. "We've lined up our North American organization to compete with our new application competitors. And just to be clear, we're not lining up our sales force. They are already lined up." Read about Oracle's fiscal fourth-quarter earnings.
JMP Securities analyst Patrick Walravens speculated that Oracle learned from the recent experience of rival
"The company confirmed the departure of Keith Block, executive vice president of Oracle North America, and preannounced the quarter three days early perhaps to avoid comparisons to SAP, where the departure of Robert Courteau, president of SAP North America, in April presaged disappointing results," he said.
Nomura's Rick Sherlund also wrote that Oracle management "decided it was best to release the results, as opposed to enduring three more trading days of speculation regarding the cause of Block's departure."
However, there was some disagreement on how to view the organizational changes. "The change in the North America sales leadership should be fairly seamless as existing players step up to fill the recently vacated position," UBS analyst Brent Thill wrote in a note.
JMP's Walravens offered a less upbeat view. "Any time your head of North America sales leaves and you change the person running the applications business, that's a big change," he said in an interview.
He was referring the naming of Joanne Olsen as head of Oracle's software-applications business, expanding on her current role as head of its cloud service.
In one of particular instant messages, Block appears to complain to another executive about Olsen, saying: "She's stealing revenue from me."
The complaint underscored what analysts have noted was Oracle's current dilemma. It's trying to catch up in cloud computing -- which allows business customers to access applications and information via a network, instead of relying on in-house data centers. So instead of getting boxed into costly, multiyear software contracts, cloud customers typically pay a fee based on their number of users. That's different from the way Oracle traditionally has made money, by licensing its products.
"The risk is your cloud offering is cannibalizing your on-premise business," Walravens said, noting that Olsen's expanded role is clearly an attempt to address that issue. "The fact that putting both the cloud and the applications businesses under Joanne is a sign that they're trying to deal with that inherent conflict."
But according to Cowen & Co. analyst Peter Goldmacher, who argued that Oracle posted an "OK quarter" that spurred the stock to a "relief rally," the company faces a potentially painful choice when it comes to the rise of cloud computing.
"I don't think they address it without fundamentally overhauling the business," he said, "and I don't think they're willing to overhaul the business."
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