Oracle Bucks the IT Slowdown

The third quarter was chock full of weak outlooks from a variety of tech mega-operators, including Intel (NASDAQ:INTC), International Business Machines (NYSE:IBM) and Google (NASDAQ:GOOG), but it looks like at least one Silicon Valley blue-chip isn’t being fazed by a slowdown.

That’d be Oracle (NASDAQ:ORCL), whose stock was up nearly 4% Wednesday after practically trumpeting its fiscal Q2 earnings to the financial world Tuesday.

ORCL’s adjusted profits came to $3.12 billion, or 64 cents a share — up more than 18% from the year-ago period — on revenues that increased 3.2% to $9.09 billion. Both figures trumped the expectations of analysts, who predicted EPS of 61 cents and revenues of $9.02 billion. Oracle also forecast fiscal Q3 profits of 64 to 68 cents; analysts were right in the middle with a target of 66 cents.

Oracle’s full suite of software products got traction in the quarter, from databases to middleware to applications.

The cloud business was a bright spot, too. Over the past couple years, Oracle has aggressively purchased a variety of operators like RightNow Technologies and Taleo. Now, its cloud business is expected to haul in more than $1 billion in revenues for the year thanks to new customers that include Expedia (NASDAQ:EXPE), Macy’s (NYSE:M) and Whirlpool (NYSE:WHR).

The cloud strategy will not only be important for future growth — but to also deal with competitive pressures. Workday (NYSE:WDAY), which is provider of enterprise resource planning (ERP), has been gaining ground on Oracle, and (NYSE:CRM) is another threat in the space.

Oracle also has been getting its hardware business back on track. The company has been winding down its commodity products, but now it looks like the process is complete — or, in other words, hardware sales likely will be a profit contributor from here on out.

On a global scale, IT spending likely will remain tepid; considering the budget cuts going on in the U.S. and Europe, it’s a safe bet that governments are looking to trim fat anywhere they can, and that will include technology investments to some extent.

However, even that might end up benefiting Oracle. Buyers of technology want to focus on those vendors that have a wide assortment of integrated technologies, because they usually are able to provide lower costs and better performance.

And that isn’t to say IT spending will come to a screeching halt. Oracle is in position to profit from the inevitable replacement cycle. While businesses and governments might kick the can down the road on, say, new PCs or productivity software, many of the technologies Oracle provides need to be upgraded — and that should mean continued demand.

Yet, despite that heaping helping of warm fuzzies for Oracle, the timing couldn’t be worse for anyone hoping to jump into ORCL now.

ORCL’s recent run-up has brought the stock’s year-to-date gains to more than 30%, which has driven up its valuation to 17 times earnings — not glaringly expensive, but far from a swinging deal, especially given its fractional dividend yield.

Investors instead might want to wait a little longer before jumping in. If the past few years are any indication, ORCL has made more than its share of post-surge pullbacks, so you should have plenty of opportunity to buy cheaper than you could today.

Tom Taulli runs the InvestorPlace blog IPO Playbook, a site dedicated to the hottest news and rumors about initial public offerings. He is also the author of “How to Create the Next Facebook” and “High-Profit IPO Strategies: Finding Breakout IPOs for Investors and Traders.”  Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.

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