Expect a moderate acceleration in growth for Tier-I IT in FY14, says Nomura

 

Oracle’s license sales growth is an early indicator of a pick-up in discretionary spending for IT services companies, says Nomura Equity Research in its Quick Note
 
“We continue to expect a moderate acceleration in growth for Tier-I IT (Information Technology) in FY14 (versus FY13). Our Tier-I IT stock preferences among ‘Buys’ are HCL Technologies, followed by Wipro and Cognizant, and among ‘Neutrals’ we prefer Infosys over Tata Consultancy Services,” Nomura Equity Research said in its Quick Note. 
 
Oracle Corporation’s license sales growth is an early indicator of a pick-up in discretionary spending for IT services companies, and the muted performance (-2% year-on-year and flat in constant currency) in 3Q (third quarter) could temper exuberance in street expectations for IT services companies. This according to Nomura analysts, is after the third quarter results announcement of Oracle Corporation. Its shares were down 8% in after-market trading in America. This result miss, according to Thomson Reuters, is their worst miss in revenues since November 2011.
 
Nomura analyst Rick Sherlund (based in the US), in his First Look note on Oracle Corporation results, made the following observations:
 
(a) License revenue came in at $2.338 billion (-2% year-on-year, 0% constant currency), below the guidance range of +3%-13%;
 
(b)  Hardware products revenue was $671 million (-23% year-on-year, -22% constant currency), which is another in a long string of hardware disappointments;
 
(c) EPS (Earnings per share) of $0.65 was below Nomura’s estimates of $0.68 on lower-than-expected revenues as well as a lower-than-expected operating margin of 46.6%.
 
Oracle Financial Services Software (in India) was trading at Rs2,600, down 2.85%, on the Bombay Stock Exchange.
 
According to Oracle Corporation (US) management’s guidance and commentary for future performance:
 
(a) Oracle has guided for 1%-11% year-on-year growth in license revenues for the next quarter and a fall of 12%-22% year-on-year in hardware.  
 
(b) Oracle attributed the miss in revenues to lack of urgency in sales force execution which has led to many 3Q (third quarter) deals falling into 4Q (fourth quarter). 
 
(c) Oracle mentioned in the results conference call that the pipeline growth is encouraging but they still have been conservative with the 4Q (fourth quarter) guidance. 
 

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