"Bottom line, our confidence in Oracle was rooted in Exadata growth and expectations are now clearly much lower than originally expected," Zelnick writes in a research note, referring to the company's database servers. "We still contend the products are advantaged in the market, but we see FY Q2 evidencing an unintended consequence of entering the hardware business – cyclicality."
Zelnick says he still thinks Exadata "offers unique value to customers," he adds that "demand will prove cyclical like most enterprise hardware. He adds that Street expectations for the fiscal third quarter ending February are for "above normal seasonality," but that "the Street may not be properly accounting for lower Exadata expectations and the resulting drag on technology license growth."
He adds that the midpoint of the company's FY Q3 license guidance implies 11%-12% organic growth versus the 6-year average of about 2%. "This is clearly a risk against a backdrop that we believe is increasingly challenging for all providers of enterprise information technology," he writes.
ORCL this morning is down 21 cents, or 0.7%, to $28.30.
