Oracle's Q2 numbers: Respite for Indian IT services

The numbers give a peep into the client spend budgets on software and solutions

IT solutions, services and hardware company Oracle’s better than expected second quarter numbers and a guidance of 4-14% growth in new software license sales for Q3 saw the Indian IT stock going up today.

Oracle’s positive numbers had impact on Indian IT services stock on the Bombay stock Exchange. During intra-day trading Tata Consultancy Services (TCS) stock was up 1.69% at Rs 1,231 per share, Wipro gained 1.86%, HCL Technologies was  up 1.35% and Infosys was marginally up by 0.24%.

Oracle also told analyst that it sees software sales growth to stay strong for the year even as fears continue that customers might want to hold on their IT spends as the US heads towards a fiscal cliff. “We’re having a wonderful December so far. People are wanting to spend their budgets. I can tell you our federal customers have been spending money with us even in December,” said CFO Safra Catz on the analyst call.

Oracle numbers will bring much respite for those who track the Indian IT services as it gives a peep into the client spend budgets on software and solutions. Indian IT firms act as implementation partners for several of these deployments.

“The increase in new license sales is key indicator of discretionary spending picking up across geography. From Indian IT vendors perspective oracle results indicate demand pick-up in Package Implementation vertical which accounts from 13-25% of total revenues for Tier-1 companies. We can expect ERP vertical to do well for the Indian IT vendors going ahead,” said Hitesh Punjabi, research analyst, East India Securities.

“Oracle's strong growth in the US in particular eases-off, to some extent, the negative expectations from fiscal cliff in US. In particular this contrasts with the profit warnings from TIBCO earlier in December and commentary from Infosys/Syntel of slowing decision making in November and December. Oracle's strong performance follows a strong September quarter by SAP and suggests that enterprise software spending may indeed be turning around for the better,” said a note from Ambit Capital Reserach.

Ideally the positive Oracle numbers would mean gains for Infosys with largest Oracle practice and HCL Technologies that has a large EAS exposure. “However, Infosys' commentary on sales conversions in Nov and deals in-flight have contrasted with that of Oracle. This could either mean Infosys is losing share or that the license sales today shows up in a strong pipeline - something Infosys also agrees on- and may convert into a services deal,” said the Ambit note.

Shashi Bhusan, senior research analyst, Prabhudas Liladhar said: “The double digit growth across the geographies is also an indication of demand returning back to concerned geographies like Europe. The strong license revenue growth gives early indication of discretionary spend returning back after disappointing CY12. We stick to our hypothesis of stable demand environment.”