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Oracle Corp. (ORCL - Analyst Report) is scheduled to announce its fiscal 2013 first quarter results after the closing bell on September 20, 2012. In the run up to the earnings release, we do not notice any significant revision in estimates by the analysts covering the stock. Oracle has outperformed the Zacks Consensus Estimate in the preceding four quarters by a positive 2.50%. We expect this trend to continue in the current quarter.

Previous Quarter Highlights

Oracle reported robust top-line growth in the fourth quarter of 2012 that helped the company earn 79 cents per share in the quarter, beating the Zacks Consensus Estimate by 3 cents.

Total revenue increased 1.3% year over year to $10.92 billion, driven by better-than-expected new software license revenues (up 6.6% year over year), fully offsetting a decline in hardware sales (down 13.8% year over year). The decline in hardware sales was primarily due to lower volumes.

For the first quarter of 2013, Oracle expects non-GAAP earnings in the range of 51 cents to 55 cents per share. Oracle expects total revenue growth on non-GAAP basis to range from -2.0% to 1.0% considering the current rates.

For further details please see: Oracle Beats Estimates in 4Q.

Estimate Revision Trend

Over the past 30 days, none of the 16 analysts covering the stock revised their estimates in either direction. Thus, the Zacks Consensus Estimate for the first quarter remained at 51 cents reflecting year-over-year earnings growth of 13.2%.

The Zacks Consensus Estimate for first quarter revenue is $8.42 billion, almost flat compared with $8.37 billion reported in the year-ago quarter.

Analysts expect Oracle to report an in-line quarter, driven by positive growth from new software sales and strength in middleware and database, which is expected to offset sluggish hardware sales in the near term.

Recommendation

Over the years, first quarter has been seasonally weak for Oracle. We expect this trend to continue in the current quarter. Nonetheless, we believe that Oracle possesses a strong product pipeline, which will drive broad-based top-line growth going forward.

We believe that speedy adoption of Exadata, Exalogic, Exalytics, the core SPARC product line and fusion systems will drive incremental top-line growth going ahead. Moreover, Oracle’s solid product suite lends a competitive edge over rivals like International Business Machines Corp. (IBM - Analyst Report) and SAP AG (SAP - Analyst Report). We believe that the new public cloud offering, known as Oracle Cloud, will diversify its revenue base, thereby boosting top-line growth.

However, lower hardware volumes remain a concern in the near term. We believe that Oracle will take at least another three to four quarters to achieve top-line growth in the hardware segment.

As Oracle sells higher-margin products compared to its competitors, we anticipate that a sluggish market and lower IT spending may act as a headwind to hardware volumes going forward. Oracle could see integration issues due to the rapid pace of acquisitions within a short span of time.

We maintain a long-term Neutral recommendation on Oracle. Currently, Oracle has a Zacks #3 Rank, which implies a Hold rating on a short-term basis.

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