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Does Oracle Deserve This Haircut?

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Still think Mark Hurd is a wunderkind when it comes to selling hardware? Oracle (Nasdaq: ORCL  ) surprised the Street last night when it reported a 6% decline in fourth-quarter hardware revenue. The stock fell sharply as a result.

It's tough to call this sell-off justified after looking at all the Q4 results. Some highlights:

  • Total revenue reached $10.78 billion, resulting in $0.75 a share of adjusted earnings. Analysts expected $10.75 billion and $0.71, respectively.
  • New software license revenue improved 19% to $3.73 billion.
  • Full-year cash from operations soared 29% to $11.2 billion.

And while investors didn't appreciate the decline in hardware system sales, propelled by Exadata and Exalogic system growth, Oracle still managed to generate $1.83 billion in sales when you include maintenance and support. On that basis, the hardware group roughly matched last year's Q4.

So why are investors selling? I guess they'd overestimated the database king's ability to topple server and storage incumbents. Some may have pinned their hopes on a May research report from IDC, which showed Oracle making slight share gains on a double-digit increase in server revenue. Was IDC simply wrong? Too optimistic?

Neither, I'd say. IDC's numbers never intended to represent more than a portion of Oracle's hardware sales -- server-related revenue specifically, inherited via its acquisition of Sun Microsystems. The optimists among us probably hoped that server gains would boost the entire hardware division, putting pressure on Hewlett-Packard (NYSE: HPQ  ) , IBM (NYSE: IBM  ) , and Dell (Nasdaq: DELL  ) as earnings soared. That just didn't happen.

Should investors worry? Should they keep selling? We're asking you. Please vote in the poll below, then leave a comment to tell us what you think about Oracle's earnings report.

Fool contributor Tim Beyers is a member of the Motley Fool Rule Breakers stock-picking team. He owned shares of IBM and Oracle at the time of publication. Check out Tim's portfolio holdings and Foolish writings, or connect with him on Twitter as @milehighfool. You can also get his insights delivered directly to your RSS reader.

The Motley Fool owns shares of Oracle and International Business Machines. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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  • Report this Comment On June 24, 2011, at 12:44 PM, Brettze wrote:

    Marek Fuchs has a nasty habit of prying into my tradings and write negative stories against my pickings. almost so immediately !! Investigate him, SEC!!

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