How Oracle May Evolve Into A Value Stock In 2012

While a ~14% drop might seem a bit steep given only one bad quarter, the numbers did as a matter of fact look questionable. Oracle's hardware division was possibly the biggest disappointment for the company. Not only did their sales of Exalytics and other systems fail to bring in more revenue than that of Q2 2011, however the biggest relative contractions were found in raw sales in other words than support, indicating much weaker demand than expected from client firms.

Result of recent fears over Europe

As a result of recent fears over Europe and a global slowdown, we saw particularly weak sales figures this quarter as companies braced for slow business. As stated previously, the weakness in sales revenue instead of services revenue was particularly apparent. The most notable example in the data can be found with Q2 2012 relative to Q2 2011, where hardware sales revenue dropped a whopping 14% relative to the miniscule 2% drop in hardware support. The same trend was seen in software: new software licenses generated only 2% more revenue than the same period last year during software support and license updates expanded revenue by 9%. Those year on year results hardly resemble that of a growth stock.

Oracle, as you might know, does a lot of their business in Europe. To be more precise, about 31% of their revenue comes from the EMEA region. Due to recent fears of recession/stagnation in the Eurozone, ORCL has already been crushed by investors with every emerging crisis with European sovereign debt. Since growth prospects have been fundamentally damaged there, this greatly increases the importance of IT sales/service demand in the US and Asia. Both remain very questionable.

The skepticism I've provided about Oracle's strategy

Despite all the skepticism I've provided about Oracle's strategy and fading growth, there is major possibility in the realm of cloud computing for the company given a proper string of acquisitions that it may make in 2012. If investors grow sour enough on the stock, we might see enough pain in the stock to strongly justify a purchase in a value play. I'd as well be willing to get excited over the company's stock again if it can make more meaningful progress into cloud computing since that field has so much room to run, however until at the time, the stock could very then remain in limbo unless something changes.