Wall Street Beat: Software vendors report mixed results amid market tumult

While Red Hat had a strong quarter, sales were soft for Tibco and Oracle

Against a backdrop of market tumult, enterprise software companies this week reported mixed quarterly results.

Though Red Hat reported a robust quarter, Oracle revenue flatlined and Tibco's sales and profit declined year over year.

Meanwhile, shares of tech companies plunged Thursday along with the rest of the market, as investors took in the news that the U.S. Federal Reserve may taper off some initiatives to support markets as it sees the economy improve. For example, Fed Chairman Ben Bernanke for the first time suggested a timeline for winding down purchases of mortgage bonds and treasuries, possibly next year.

Though the Fed still plans to keep interest rates low, stocks plunged Thursday. The broad Standard and Poor's 500 index declined 2.5 percent, its worst drop since November 2011. The Dow Jones Industrial Average ended down 353.87 points, or 2.3 percent, with all of its 30 components in negative territory, including its five tech stocks: Hewlett-Packard, Microsoft, Cisco, IBM and Intel.

Stocks again declined in Friday morning trading, though not sharply. The only tech stock in the Dow that was trading higher was Cisco, up by $0.04 to $24.22. The Nasdaq Computer index, which tracks more than 300 tech-related securities, was down by 1.29 percent to 1603.27.

Though software has been a bright spot for tech, vendors are heading into what is expected to be a bumpy ride for the economy and the market.

"While we are incrementally more optimistic about the macro demand for software IT, we fully recognize that the world economy is still fragile and it is improving haltingly," said Canaccord Genuity analyst Richard Davis in a research note about Oracle. "This means that summer 2013 will likely be one full of a confusing mishmash of data points."

Though Oracle Thursday reported a 10 percent year over year increase in profit, to US$3.8 billion, revenue for the three months ending in May was flat at $10.9 billion. Oracle tried to highlight the good news, saying that SaaS (software as a service) revenue growth was up 50 percent. However, SaaS is only a small part of new software licenses and cloud software subscriptions, which rose a tepid 1 percent to $4 billion. New software licenses are key for growth for a software company, so the weak increase has investors worried. Oracle shares declined by $2.71 in Friday morning trading, to $30.50.

Oracle maintenance fees, meanwhile increased 6 percent to $4.4 billion, providing a cushion for the company, but hardware revenue continued to decline, dropping 9 percent to $1.43 billion, as Oracle restructures its offerings to focus on high-end systems.

Oracle executives noted that economic concerns appeared to put a damper on enterprise spending.

"When we saw weakness, we saw weakness in all of our software lines," CEO Larry Ellison said in a conference call to discuss results. "It was clearly an economic issue, not a product competitiveness issue."

Still, some industry insiders remain optimistic even in the face of a tough economic environment.

"We see a gold rush coming," said Tibco CEO Vivek Ranadivé in an interview after the company announced quarterly results Thursday. Big data analytics is the "secret sauce for the most successful retailers," Ranadivé said. Vendors that can show they have superior products that allow real time analysis of data integrated from a variety of sources -- including mobile devices -- will be able to take advantage of enterprises' rush to implement big-data applications, he said.

Nevertheless, Tibco reported a tough quarter. Quarterly revenue for the period ending June 2 was $245.8 million, down from $247.4 million a year earlier, while net income was $8.7 million, down from $26.5 million.

Tibco, which offers a portfolio of middleware and analytics software geared for the integration and real time analysis of massive amounts of data, is not being hurt by economic concerns, Ranadivé insisted, but has had sales execution issues, which it has taken pains to resolve. Top sales executives have been replaced and the sales process has been reviewed and overhauled "from A to Z," Ranadivé said.

"In my many conversations with customers, I have not seen those customers unwilling to spend money," Ranadivé said in a conference call with analysts to discuss results. "However, what is the case today is that software providers of every stripe need to demonstrate value to sell their products. They need to showcase their differentiation and more importantly, make precisely clear how they will move the needle for their clients in terms of revenue or market share gains, specific and lasting cost reductions or improvements in managing risks."

Tibco has a strong pipeline of deals in the works, Ranadive added, and expects to see results from its overhaul of its sales team over the next few quarters.

Meanwhile, open-source software vendor Red Hat, reporting quarterly results Wednesday, showed strong gains in both sales and profit. Total revenue for the quarter was $363 million, a year over year increase of 15 percent, while net income rose to $40 million from $37 million.

"We delivered mid-teens revenue growth driven by customer demand for innovative open source technologies based on a high-value subscription model," said CEO Jim Whitehurst in a press release. "We continued to execute against our strategy of significantly expanding our addressable market in the new cloud-centric data center."

Tech companies whose quarter ends in June, meanwhile, will report results in about a month. Those results may reflect some of the economic uncertainty that has arisen this month.

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Tags business issuesopen sourceapplicationsmiddlewaredata miningsoftwarefinancial resultsRed Hattibcodata integrationOracle

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Marc Ferranti

IDG News Service
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