The €1.8bn that was wiped off the value of the Irish Stock Exchange and the further billions worldwide last week was, in part, driven by the threat of war in the Gulf, but mostly by the slew of profit warnings by US banking giant JP Morgan and software giant Oracle.
For technology stocks it has been a two-year period of non-starters, while anyone looking to discover some glimmer of a potential rebound would be wise to pay attention to the sober assessments provided by the likes of Oracle as it struggles to maintain its grace. The bad news continued with a similar profit warning from the world’s second largest IT company, EDS, citing fewer services contracts and companies’ reluctance to spend on technology.
That company’s shares fell some 38pc when the results became public knowledge. The biggest of the lot, IBM, also suffered a sharp drop in its share price as analysts cut earnings estimates and its share earnings forecast by 11pc. While these companies shake their heads in collective disbelief, one of hardest hit, Oracle, has already cottoned on to a realistic solution in its own context.
Although Oracle reached analysts’ first quarter earnings estimates, the company predicted that its revenue will continue to decline through the second quarter. Revenue from the first quarter fell 10pc from US$2.27bn a year ago. The company predicts a further drop in revenue in the second quarter by 4-7pc. Sales in Europe and Asia were the hardest hit.
In the halcyon days of the late-Nineties boom IT outfits such as Oracle focused on the majority of their revenue mix through major multimillion dollar contracts with banks and government bodies.
The normally ebullient Larry Ellison, whose penchant for fast cars and MiG fighter jets would put any kowtowing and simple living CEO to shame in the post-Enron days, has introduced a new tactic: sell small. Instead of huge multimillion dollar contracts, he says Oracle is now focusing on a greater number of smaller deals that when added together may give the IT giant a more stable ground on which to assess future revenue growth.
Ellison’s logic bears some merit. In a post downturn climate where banks, in particular, have halted major IT rollouts, the loss of a number of such major deals could mean the difference between whether an IT powerhouse such as Oracle stays in the black or slips into the red.
Despite this shift in emphasis, there is some good news for the company’s 1,100 workers, in that Oracle intends to honour its commitment to recruit a further 70 workers before the end of the year.
By John Kennedy.