Not many software companies can survive 30 years. But, that's what Oracle (NASDAQ: ORCL) has been able to do.
In fact, according to a cover piece in Barron's [a paid publication], it looks like the company may be poised for continued success.
The company's CEO and co-founder, Larry Ellison, is a legend in the software business. He has battled with biggies like IBM (NYSE: IBM), SAP (NYSE: SAP) and Microsoft (NASDAQ: MSFT). He has also conquered a variety of database operators.
But, Ellison has also been bulking up his company with savvy acquisitions, such as PeopleSoft, Siebel and BEA Systems (spending over $30 billion on dealmaking since 2005). Basically, he believes that business software is a fairly mature business and needs consolidation. What's more, the business is highly sticky. That is, once you implement an ERP system or database platform, it's pretty tough to make a change.
So far, the results have been solid. Over the past year, operating margins have gone from 36% to 42%. Then again, Oracle has benefited from economies of scale, such as with R&D, sales, customer support, and so on.
What's more, Oracle has lots of cross-sale opportunities. In fact, software licenses are up 29% to $4.4 billion. Keep in mind that this will be a source of future growth because of the ongoing maintenance fees.
Conservative social and political groups are vowing to fight the recent California ruling in which a republican-dominated court declared that sexual preference should not bar couples from legal marriage. In an Associated Press article, the court opinion is quoted as stating that "domestic partnerships that provide many of the rights and benefits of matrimony are not enough."
In pursuance of equal footing, gay, lesbian, and bisexual investors have been seeking and "outing" corporations with gay-friendly policies and have been backing those companies in a show of financial clout. An example of the application of this forward social dynamic would be Trillium Asset Management, which has at least once scored a "perfect 10" on the Gay and Lesbian Values Index (glvindex). With an investment focus called Socially Responsible Investing (SRI), this company seeks to provide investment returns in keeping with industry standards, while at the same time maintaining "unique focus on social research and advocacy."
Corporations that have taken careful strides to bring their standards up to date with regard to societal equality appear to be gaining in popularity with gay and gay-friendly investors, as evidenced by their placement on and recognition of the glvindex. SC Johnson acknowledged it's high ranking on the glvindex in a company press release that stated in part: "To us, diversity is about building the best, most talented workforce that mirrors the marketplace, and motivating them with an environment that enables people to be themselves and contribute freely and effectively."
Selling Off the Core Business It was quite a surprise to some this week to hear that GE is looking to sell their signature product line --appliances. But, they aren't the first company to move away from their early roots. Here are some companies that decided to cut their roots-the products that fed their early growth to delve into other areas. Companies have mixed results when they stray from their original visions, sometimes stumbling to adjust and others morphing into better creations. Among the companies are IBM which sold off their PC unit, Corning and Corningware, Kodak and 35MM Film, Goodrich and tires and more. Selling off the core business - BusinessWeek In the News: GE Confirms It Is Considering Strategic Options for Its Appliance Unit
Nuance Communications (NASDAQ: NUAN), a business devoted to speech recognition technologies and document solutions, reported Q2 earnings earlier this week. Those of you who own this stock know that the company oftentimes puts forth a complicated earnings release, full of GAAP and non-GAAP stats. This is due, in part, to the company's acquisition strategy (not long ago, I wrote about Nuance's purchase of eScription). So, on a GAAP basis, don't expect much. Net loss per diluted share expanded to $0.13 versus a net loss per diluted share of $0.01 in last year's second fiscal quarter (there was a significant non-cash-stock-based compensation charge included in the current quarter). Top-line revenue did well on a GAAP basis, however, rising 54%. Again, though, this growth was due to acquisitions.
On a non-GAAP basis, things look much brighter. Revenues rose 63%, and net income per diluted share increased 50% to $0.18. According to Reuters, this figure matched analyst expectations (I would have liked to have seen Nuance beat expectations, but it is what it is). Of course, Nuance stimulates a classic bull-bear discussion in terms of when GAAP profitability becomes more of an issue than non-GAAP success. As a Nuance shareholder, I definitely would like to see GAAP profits on a consistent basis, but I am well aware that management intends to gamble on acquisitions as a method for creating shareholder value, and for now, I am willing to be patient and watch how the company proceeds.
Nuance could be considered a risky, speculative stock in many ways, but I think it has a good chance of doing well over time with its technologies. You'd probably sleep better with competitors Microsoft (NASDAQ: MSFT) and IBM (NYSE: IBM) in your portfolio, but since I own it from around $9 per share, I'm willing to wait and see how the share price moves from this point forward (admittedly, I was considering booking profits recently, but decided against such action). Anyone thinking of getting in now might want to perform a lot of due diligence and wait for the proverbial pullback.
Disclosure: I own shares in Nuance Communications; positions can change at any time.
National home prices tumbled by 7.7% in the first quarter in a recent survey. While retail sales did fall -0.2% overall in the month of April, the ex-autos numbers were actually positive by +0.5%. Below are the unofficial closing levels for major averages:
Clear Channel Communications Inc. (NYSE: CCU) was up again on news of a settlement between the buyers and the banks for the $20 billion delayed buyout by Bain Capital and THL Partners. The court was adjourned until 2 pm today to allow settlement talks to continue. Shares were up 4% to $34.24 at the end of the day.
For the past year, Hewlett-Packard (NYSE: HPQ) posted revenues of $107 billion. So, to grow just 5%, the company will need to essentially create another Fortune 500 company.
That's something HP's CEO, Mark Hurd, definitely has mentioned on various occasions. Basically, how can a behemoth continue to grow?
Perhaps a smart strategy is to make big acquisitions?
Well, today HP has announced a hefty $13.9 billion buyout deal for EDS (NYSE: EDS), an information technology (IT) consulting operator. Over the past year, EDS posted about $22 billion in revenues.
But Hurd is not just concerned about the top-line. If anything, he's highly disciplined with generating profits. In fact, since he has come on board HP (back in 2005), Hurd has been masterful in finding efficiencies – while still pushing revenue growth.
While the history of transformative M&A is filled with failures, with the HP-Compaq combination a prime example of what can go wrong, the strategic rationale for the EDS deal makes sense. In today's global environment, customers want strong technologies but also sophisticated services. Actually, companies are increasingly outsourcing services to players like EDS.
Moreover, with much more heft, HP and EDS will become a formidable alternative to IBM (NYSE: IBM), which has proven the technology/services model.
Finally, I'm sure that Hurd will take out his cost-cutting knife. It's something that hasn't been emphasized but I'm sure it will be a big part of the deal.
That's because EDS and HP would under perform in services when it comes to profitability. EDS's bigger business earned a 1% net profit margin in the first quarter. But HP's services business generated a far higher 9% estimated net margin. Unfortunately -- for reasons described below -- the combined company will probably have lower margins.
Meanwhile, IBM's profit lagged HP's slightly -- it made an estimated 7% net margin in the first quarter in its services business. But IBM is and will remain a much bigger player. Combined, EDS and HP's services business will control 5.3% -- lagging IBM. That's because IBM controlled 7.2% of the tech-services market in 2007 while EDS was a distant second at 3% and HP was fifth, with a 2.3% share.
This gigantic beat also serves to remind us of the big dichotomy. You are either in the energy and petroleum products game or you are in a lot of games that don't work.
It's not easy for these companies, some of which have lived off the duress of state and local governments, including Shaw (NYSE: SGR) (Cramer's Take) and to a certain extent Aecom (NYSE: ACM) (Cramer's Take) and URS (NYSE: URS) (Cramer's Take), to become oil-and-gas plays.
The only ones that have transcended it beside Fluor are Foster Wheeler (NASDAQ: FWLT) (Cramer's Take) and Jacobs Engineering (NYSE: JEC) (Cramer's Take), and the only reason you would really know that is longevity. I remember in the early 1980s when FLR and then FWC would compete directly for all of the huge projects after the second oil shock.
By looking at other companies that sell services and PCs, it has occured to Hewlett-Packard (NYSE: HPQ) that the hardware business is getting more competitive and that margins are moving down, But hardware is still the largest revenue center at the big tech company, and that may be the single greatest failing of the current management. It has not created large enough software and services businesses to match the hardware sales.
HP brings in less that 25% of its revenue from services. But that business is growing quickly. According to the company's 10-Q, it had revenue of almost $4.4 billion in the first quarter. In the same period a year ago, that number was $3.9 billion.
The prevailing theory is that HP plans to buy EDS (NYSE: EDS) for $12.6 billion for its revenue from consulting and outsourcing to better compete against IBM (NYSE: IBM). That may be true, but the actual reason may be much more simple than that. With its stock up 50% over the last two years, HP needs a new business to keep its revenue growing and its shareholders happy. That is not going to come from its ink and printer business. Buying EDS almost guarantees another two years of rising revenue and earnings.
Douglas A. McIntyre is an editor at 247wallst.com and the author of the Ten Stocks Under $10 letter.
U.S. stock futures fell Tuesday morning even after (or perhaps because) Wal-Mart reported a 7% profit rise, slightly above analyst estimates. But investors also awaited several economic indicators due out today as well as speeches from several of the Federal Reserve members.
U.S. stocks finished the day with strong gains Monday thanks to a drop in crude oil futures and several deal speculations that hit the Street. The Dow industrials went up 130 points, or 1.02%, the Nasdaq Composite was up 42 points, or 1.76%, and the S&P 500 finished the day 15 points, or 1.10%, higher.
At 8:30 a.m. EDT April export and import prices as well as retail sales data are due. Economists expect retail sales to have declined 0.2%, and excluding autos, they expect sales to have increased 0.2% in the month. The difference in the two gauges isn't surprising as higher gasoline prices were bound to put consumers off buying cars. At 10:00 a.m. EDT, March business inventory levels are due.
But other than raw data, seven Fed members are also scheduled to give speeches, including one from Fed Chairman Ben Bernanke in Atlanta on the central bank's liquidity measures.
Hewlett-Packard Corp. (NYSE: HPQ) will purchase about 24 data centers in Europe from BT Group (formerly British Telecom) for $2.9 billion, the Sunday Times in London reported Sunday, with an official announcement likely to come within weeks. However, BT Group will likely sign a 10-year contract to continue using the data centers with HP; BT Group just won't own them any longer.
But this isn't just a deal for HP to own more data centers as it beefs up its service provider portfolio in addition to its manufacturing prowess. BT Group is also going to manage the remainder of HP's voice and data networks worldwide. The London-based telecom company already handles HP's European voice and data networks, so this transaction is like trading a global service contract for a bunch of server farms. Or at least that's what is sounds like.
HP will continue to ramp up its portfolio of service offerings to better compete with IBM Corp. (NYSE: IBM), a company that left the hardware business to focus on service contracts with corporate customers and that has done well at it under former CEO Lou Gerstner and current CEO Sam Palmisano. HP is already a larger company by revenues than IBM, but it doesn't have the service provider clout yet -- it's still first and foremost a manufacturing company.
Amkor Technology (NASDAQ: AMKR) is a leading provider of semiconductor assembly and test services. The firm offers semiconductor companies and electronics manufacturers a complete set of microelectronics manufacturing services, including die bonding, wire bonding, chip encapsulation, and verification of function, current, timing, and voltage. Clients include IBM (NYSE: IBM), Intel (NASDAQ: INTC) and Texas Instruments (NYSE: TXN).
The company surprised the Street last week, when it reported Q1 EPS of 36 cents and revenues of $699.5 million. Analysts had been looking for 26 cents and $684.3 million. The CEO attributed success to customer demand for wireless communications and networking applications. Management also guided Q2 EPS to 32-36 cents (28 cent consensus) and Q2 revenues to about $706-$720 million ($700.6M consensus).
Sun Microsystems (NASDAQ:JAVA) has not done much right in the last few years. The company replaced founder Scott McNealy as CEO with Jonathan Schwartz who wears a ponytail and writes a blog.
The promised turnaround at Sun fell apart as the company announced lower sales and a loss. At the server firm, revenue for the third quarter of fiscal 2008 was $3.266 billion, a decrease of 0.5% as compared with $3.283 billion in the same quarter a year ago. Sun posted a net loss for the quarter of $34 million, or 4 cents per share, as compared with net income of $67 million, or 7 cents per share, last year.
Sun's plans to compete with the likes of IBM (NYSE:IBM) and other larger rivals have fallen apart. According to the company, the economy has not helped.
Sun may blame the economy, but it has run out of excuses. It will fire another 2,000 or so employees. Schwartz should be among them. The company's board should have difficulty viewing him as a viable leader, but it has made the great mistake of doing nothing.
Sun's shares traded below $14 after hours yesterday, which would put them under their 52-week low. The company's performance is humiliating and it is a sad fact that so many people have to pay for the inability of Schwartz to keep his promise of making the company a viable competitor.
LSI Corporation (NYSE: LSI) designs, develops and markets semiconductors used by original equipment manufacturers in the data networking and consumer electronics markets. It also provides a wide variety of storage systems, sub-assemblies, and storage management software applications. Top clients include Hewlett-Packard (NYSE: HPQ), IBM (NYSE: IBM) and Sony (NYSE: SNE).
The firm surprised the Street last week, when it reported Q1 EPS of ten cents and revenues of $660.75 million. Analysts had been looking for seven cents and $636 million. Management also guided Q2 EPS to 8-12 cents (seven cent consensus) and Q2 revenues to $650-$680 million ($634.62M consensus). Kaufman Brothers and Caris subsequently declared the stock a "buy". Friedman Billings and Deutsche Securities called it a "hold". All four firms upped their price targets from the range $4.50-$6.00 to the range $6.50-$7.00.
20 Most Profitable Tech Companies Among Fortune 1000 techs, Microsoft remains on top, taking in $14.1 billion in earnings last year. IBM, Cisco, Hewlett-Packard and Intel round out the top five most profitable. 20 most profitable tech companies - FORTUNE
Not many software companies can survive 30 years. But, that's what Oracle (NASDAQ: ORCL) has been able to do. 
For the past year, 
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By looking at other companies that sell services and PCs, it has occured to 
U.S. stock futures fell Tuesday morning even after (or perhaps because) Wal-Mart reported a 7% profit rise, slightly above analyst estimates. But investors also awaited several economic indicators due out today as well as speeches from several of the Federal Reserve members.
Sun Microsystems
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Just how high will U.S. gasoline prices rise?
Nordstrom and Kohl's post smaller-than-expected Q1 profit declines
