Jefferies Issues Strong Side/Weak Side on Oracle (ORCL) Following Q4 Beat; Hardware Still Area of Focus

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Jefferies comments on Oracle (Nasdaq: ORCL) following fourth-quarter earnings results, which were release after the market closed yesterday. The firm maintains a Buy rating on $38 price target on the stock.

Jefferies notes that Orcale did it with a little 'less pizazz' but still got a win under its belt. Orcale reported non-GAAP earnings of 75 cents per share on revs of $10.81 billion. The Street was looking for a milder 71 cents per share and revs of $10.75 billion.

Key points Jefferies took away from the quarter:

"On the positive side: i) No clear signs of material weakness by geography (although EMEA remains the lowest growth region); ii) By our calcs, Oracle is achieving double digit organic Creative Commons license growth; iii) Guidance implies operating margins will continue to expand; iv) FCF and deferred were ahead of consensus.  On the negative side: i) Hardware sales missed guidance for the second quarter in a row; ii) NG EPS did not beat consensus ex the one time tax benefit; iii) We expected a higher number than 1000 installed Exadata machines (though that doesn't speak to units sold plus mgmt expect 3X that in a year's time)."

On Hardware, Jefferies comments: "Hardware revenue has fallen short of the company’s expectations over the last two quarters as ORCL reported F3Q11 hardware revenue of $1.04B v guidance of $1.1-1.2B and reported F4Q11 hardware revenue of $1.1B v guidance of $1.3-1.4B. Mgmt note that while the company is seeing success with its integrated systems strategy, the business continues to be negatively impacted by the intentional roll-off of third party hardware (Hitachi and LSI). We note that the company’s improving hardware gross margin supports mgmt’s claims that they are seeing adoption of their more profitable integrated systems and our field work has suggested that ORCL is still in an adjustment phase."

Oracle expects Q112 net software license growth to increase 10 to 20 percent and total revenue growth of 9 to 12 percent. Non-GAAP earnings should be 45 to 48 cents per share, ahead of the 46 cent consensus.

On results, Jefferies moved its Q112 EPS outlook up a notch, from 45 to 46 cents per share.

For more analyst color on Oracle, click here. For a ratings history on ORCL, click here.

Oracle is trading over 3 percent lower pre-market.

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