So if companies are growing stingier about their enterprise software budgets, it could signal they are starting to cut closer to the bone. Oracle CFO Safra Catz said that it's taking some of its clients longer to approve projects. "All of a sudden the CEO had to approve it or something like that, where before it was all set," Catz said. Though, she stressed that she hadn't been told yet that any companies were reducing their IT budgets. "Clearly, this quarter was not as we thought it would be, and we've been taking a look at the deals that really should have closed and that would have closed but for some sort of irregular environment."
On the one hand, it's unrealistic to expect a company like Oracle to offer investors an economic forecast. On the other, it's hard to read a phrase like "some sort of irregular environment" and not wonder what exactly it means. Is it a one-time quirk in Oracle's accounting - an aberration that will be corrected next quarter? Or is it something more serious?
The notion that Oracle's irregular environment was limited to last quarter was undermined when the company offered guidance. The company said the current quarter's revenue would grow between 1% and 5% on year, or to between $8.9 billion and $9.3 billion -- below the analysts' consensus of $9.5 billion -- while earnings per share would be between 56 cents and 59 cents, against the Street's 59 cents.
That left some analysts worried enough that three of them -- Societe Generale, Canaccord Genuity and CLSA Asia-Pacific Markets -- cut their ratings on the stock Wednesday. But Canaccord felt that Oracle's challenges were unique to the company. "Oracle missed because some buyers waited for a new hardware upgrade, and on the software front the firm is behind the curve in cloud applications," wrote analyst Richard Davis. "We expect Oracle to catch up, but it will be through some R&D and a lot of M&A."
But other analysts suggested Oracle may be the canary in an unhealthy coal mine. Bank of America's Kash Rangan wondered if the tighter approval process Catz mentioned "could be a broader trend for software." Deutsche Bank's Tom Ernst said he "saw uncharacteristic weakness across all segments and geographies, which we find a bit puzzling... Outside of the severely contracting macro environment of the last recession, it is rare to see such low growth rates for all geographic regions."
So which is it? Has Oracle hit a speed bump as it transitions to new hardware and cloud computing offerings? Or is it the first warning sign of an unexpected contraction in corporate IT spending in the face of global economic uncertainty?
Other companies will offer more clues. On Wednesday, Tibco (TIBX), a cloud computing company, said it earned 42 cents a share last quarter, above the Street's 35-cent estimate. But the real test will come in mid-January when companies like SAP and IBM (IBM), another strong performer in tech over the past three years, are due report earnings.
If it turns out Oracle was the exception, this week's drop in software shares could prove to be a buying opportunity for bulls. But if Oracle is the first sign of a slowdown, the tech world could be in for a rough start in 2012.
