Oracle Corporation (ORCL): This Tech Giant Crashed, Where Next?

As for hardware, the weakness was expected. Oracle is clearly going through a period of product transition. This isn’t unusual; indeed its key rival IBM went through a similar thing with its System Z mainframe. This product’s revenues have been up strongly in recent quarters, and IBM is forecasting double digit growth for System Z in the first half. This is a good example of what Oracle is talking about when it talks of generating growth next year with its hardware sales. However, for now it appears that the point of inflection with its hardware has been pushed out by another quarter.

In addition, it’s hard not conclude that IBM is doing well against Oracle in middleware because it reported accelerating growth within this segment. IBM’s recent results suggest that the IT spending environment is doing fine.

Where Next for Oracle?

I think there is a good case to see the glass half full for Q4. The rest of the industry has been making positive noises, and Oracle Corporation (NASDAQ:ORCL) is a company prone to a bit of variance in its results. Whether this is due to Larry Ellison’s ebullient nature or not is anyone’s guess. However, I recall a gloomy Q2 2011 set of earnings which was promptly followed by a recovery. In addition, this year’s Q2 was particularly strong so perhaps some deals were pulled forward, and Q3 suffered accordingly.

Thinking longer term Oracle probably needs to demonstrate that its expansion of cloud based sales is accelerating and perhaps make an acquisition or two. Furthermore, it needs to convince the market that it can keep on track with its launch of new hardware. This could take time.

The stock certainly isn’t expensive on an EV/EBITDA of less than 9 and carries the prospect of a reward for shareholders with a bounce back in Q4. However, even if there is a bounce-back following better sales execution the stock will still be guided by how Oracle Corporation (NASDAQ:ORCL) deals with the cloud transition and its new hardware releases. Lots to think about here.

The article This Tech Giant Crashed, Where Next? originally appeared on Fool.com and is written by Lee Samaha.

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