During the tech industry's last big slump, software and hardware vendors were slow to cut costs as falling demand pummeled profits.
This time around, Oracle (ORCL) isn't taking chances. Oracle, the world's No. 2 software company, hit Wall Street's earnings target when it reported fiscal second-quarter results on Dec. 18, by aggressively cutting research and development, travel, and other costs as its customers curtail spending.
Amid a global economic slowdown that's sapped business demand for computers and software, Oracle widened operating margins in the quarter ended Nov. 30 to 46%, compared with 41.3% a year earlier. While the software maker missed Wall Street's estimates for total sales and new software bookings, its earnings of 34¢ a share, excluding certain items, met analysts' projections. Better still, Oracle issued a third-quarter earnings outlook roughly in line with Wall Street estimates.
Shares of Oracle gained 4% in extended trading, after closing Dec. 18 down 13¢, or 0.8%, at 16.61. The shares have lost 2.4% in the past month, compared with a 4.7% gain for the Nasdaq Composite Index.
Wide Range of Products Helps
Oracle displayed a knack for slicing costs while offering customers a wide range of products that it's assembled through a slew of acquisitions the past four years, analysts said. "This company can hold the bottom line better than anyone," says Brent Thill, Citigroup's (C) software research director, who rates Oracle's stock a buy.
Analysts said Oracle has cut expenses in sales and marketing, and overseas R&D, and reduced sales and back-office expenses from its January acquisition of BEA Systems. A wide breadth of products lets Oracle salespeople zero in on where customers are still spending. "It all goes back to the all-you-can-eat buffet at Oracle," Thill says. "You can pick one thing or everything, and they have something they can talk to a client about."
The appetite for cost-cutting is catching across tech. Dell (DELL) beat Wall Street's profit forecasts in its third quarter, reported Nov. 20, by taking an ax to expenses, despite ringing up sales that were more than $1 billion short of expectations. Troubled computer maker Sun Microsystems (JAVA) in November said it plans to cut up to 6,000 jobs, or 18% of its staff. Tech firms including Adobe Systems (ADBE) and Western Digital (WDC) have announced plans to shed workers as well.
Net Income Falls amid Sales Slowdown
"Within technology we're seeing revenue weakness but good profitability," says Andy Miedler, a senior technology analyst at Edward Jones, who has a buy rating on Oracle. "Companies are more aggressive with cost-cutting during this downturn due to the lessons they learned with cutting costs too slowly during the tech wreck last time."
Cost-cutting aside, sales still take a hit when customers slash information technology budgets. Oracle's net income fell 0.5%, to $1.27 billion, in the second quarter, and sales were up 5.5%, to $5.6 billion, vs. analysts' consensus estimate of $5.84 billion. New software license revenue, an indicator of future sales, was down 3% to $1.6 billion. The closely watched metric fell far short of Oracle's forecast three months ago, when it said new license revenues would rise 2% to 12%. The bookings are a key measure of Oracle's performance, since they often produce additional tech support revenue.
This time around, Oracle (ORCL) isn't taking chances. Oracle, the world's No. 2 software company, hit Wall Street's earnings target when it reported fiscal second-quarter results on Dec. 18, by aggressively cutting research and development, travel, and other costs as its customers curtail spending.
Amid a global economic slowdown that's sapped business demand for computers and software, Oracle widened operating margins in the quarter ended Nov. 30 to 46%, compared with 41.3% a year earlier. While the software maker missed Wall Street's estimates for total sales and new software bookings, its earnings of 34¢ a share, excluding certain items, met analysts' projections. Better still, Oracle issued a third-quarter earnings outlook roughly in line with Wall Street estimates.
Shares of Oracle gained 4% in extended trading, after closing Dec. 18 down 13¢, or 0.8%, at 16.61. The shares have lost 2.4% in the past month, compared with a 4.7% gain for the Nasdaq Composite Index.
Wide Range of Products Helps
Oracle displayed a knack for slicing costs while offering customers a wide range of products that it's assembled through a slew of acquisitions the past four years, analysts said. "This company can hold the bottom line better than anyone," says Brent Thill, Citigroup's (C) software research director, who rates Oracle's stock a buy.
Analysts said Oracle has cut expenses in sales and marketing, and overseas R&D, and reduced sales and back-office expenses from its January acquisition of BEA Systems. A wide breadth of products lets Oracle salespeople zero in on where customers are still spending. "It all goes back to the all-you-can-eat buffet at Oracle," Thill says. "You can pick one thing or everything, and they have something they can talk to a client about."
The appetite for cost-cutting is catching across tech. Dell (DELL) beat Wall Street's profit forecasts in its third quarter, reported Nov. 20, by taking an ax to expenses, despite ringing up sales that were more than $1 billion short of expectations. Troubled computer maker Sun Microsystems (JAVA) in November said it plans to cut up to 6,000 jobs, or 18% of its staff. Tech firms including Adobe Systems (ADBE) and Western Digital (WDC) have announced plans to shed workers as well.
Net Income Falls amid Sales Slowdown
"Within technology we're seeing revenue weakness but good profitability," says Andy Miedler, a senior technology analyst at Edward Jones, who has a buy rating on Oracle. "Companies are more aggressive with cost-cutting during this downturn due to the lessons they learned with cutting costs too slowly during the tech wreck last time."
Cost-cutting aside, sales still take a hit when customers slash information technology budgets. Oracle's net income fell 0.5%, to $1.27 billion, in the second quarter, and sales were up 5.5%, to $5.6 billion, vs. analysts' consensus estimate of $5.84 billion. New software license revenue, an indicator of future sales, was down 3% to $1.6 billion. The closely watched metric fell far short of Oracle's forecast three months ago, when it said new license revenues would rise 2% to 12%. The bookings are a key measure of Oracle's performance, since they often produce additional tech support revenue.
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