Oracle blames sales force for Q3 miss, projects Q4 growth

Oracle Corp forecast a return to growth in new software sales this quarter, after blaming its rapidly expanding salesforce for a severe miss in third-quarter revenue that drove its shares 8 percent lower on Wednesday.

The world's No. 3 software maker projected a 1 to 11 percent rise in new software licenses and Internet-based subscriptions in the May quarter, following a 2 percent slip in the February quarter that badly missed Wall Street's targets.

Executives ascribed the miss mainly to a poor salesforce performance.

"What we really saw was the lack of urgency we sometimes see in the sales force, as Q3 deals fall into Q4," Chief Financial Officer Safra Catz told analysts on a conference call.

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"Since we've been adding literally thousands of new sales reps around the world, the problem was largely sales execution, especially with the new reps as they ran out of runway in Q3."

Wall Street remains concerned about tepid spending by governments and corporations in an uncertain global environment, but Catz dismissed those fears.

Oracle is also facing greater competition in cloud or Internet-based software from the likes of International Business Machines Corp and SAP AG and nimbler rivals like Salesforce Inc and Workday Inc .

Oracle posted a 2 percent drop in new software sales and Internet-based software subscriptions to USD 2.3 billion in its fiscal third quarter, well below Wall Street's and its own projections. Investors scrutinize new software sales because they generate high-margin, long-term maintenance contracts and are an important barometer of future profit.

The company had forecast a 3 to 13 percent jump in new software license and cloud subscription revenue.

"It doesn't help that the sequester deadline is on the last day of our quarter, and so that has a little bit of an impact here in North America, but not necessarily anywhere else," Catz said. "The economy has been as it is in Europe for a while."

CONFIDENCE WANING

Oracle's revenue miss - about 4.4 percent below the average forecast - was its worst since the November quarter of 2011, when it fell short of target by 4.5 percent, according to Thomson Reuters data.

Overall, Oracle's revenue dipped 1 percent to USD 9 billion, missing the USD9.382 billion analysts had expected on average according to Thomson Reuters I/B/E/S.

Revenue from Oracle's troubled hardware division, which it acquired through the USD 5.6 billion purchase of Sun Microsystems in January 2010, fell to USD 671 million from USD 869 million in the year-ago quarter. The company had predicted revenue would stay flat or fall 10 percent from a year earlier.

The division's revenue has fallen every quarter since it closed the Sun deal. Chief Executive Larry Ellison has said he expected hardware systems revenue to start growing in the fiscal fourth quarter, which begins March 1.

Some investors still worry that governments and corporations around the globe may postpone spending on technology projects because of uncertainty over the economy, particularly in Europe.

"Business sentiment and confidence is way down. People are more cautious right now in business than they are in the stock market. That's how we get very high valuation multiples on stocks, but businesses are pulling back," said Richard Williams, an analyst at Cross Research.

GAAP net profit was unchanged at USD 2.5 billion. GAAP earnings per share were 52 cents, up 6 percent from the year-ago period. Its adjusted earnings per share were 65 cents, shy of 66 cents expected by analysts.

Shares in the software company fell 8 percent to USD 32.95 after hours, from a close of USD 35.765 on Nasdaq.