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Oracle Takes Its Eyes off the Ball

Stocks in this article: ORCL VMW RHT

NEW YORK ( TheStreet) -- The sharp tumble in shares of Oracle (ORCL) Wednesday appears to be a combination of macro headwinds from both Europe and America, as well as Oracle taking its eyes off the ball.

The company reported sharply lower-than-expected earnings and revenues.

Oracle CEO Larry Ellison

For the quarter ending November, Oracle earned 54 cents per share on $8.8 billion in revenue. The average estimate of analysts polled by Thomson Reuters were expecting earnings of 57 cents a share in the three-month period on revenue of $9.23 billion.

The database giant cited a longer-than-expected approvals process from its customers as part of the delay. This may mean that customers are being more hesitant with purchases than they had been in previous quarters. Nomura Securities International analyst Rick Sherlund and Atlantic Equities' analyst Christopher Hickey said that an increase in approval is typical during periods of macro slowdowns and uncertainty.

In an interview, Sanford C. Bernstein analyst Mark Moerdler noted that revenues in Europe, as well as the Americas were both lower than expected. "I think to an extent, it was an example of Oracle taking its eyes off the ball," Moerdler said, when referring to the approval delays by some customers. He said that it is a more problematic than usual, and Oracle's management, led by CEO Larry Ellison, was bullish on the third quarter. He said it was surprising that Oracle did not foresee the problems that arose in the quarter.

Brad Reback of Oppenheimer believes this could be a worsening in the broader economy. In his research note, Reback wrote, "We believe the recent results from CRM, ORCL and RHT could be early signs the IT spending environment is slowing and the macro is finally impacting buying behavior." He rates shares outperform with a $32 price target.

When asked if Europe was the main issue, Moerdler noted that historically, Oracle has not been a leading indicator in macro headwinds. He rates shares market perform, and lowered his price target to $33.

On the conference call, Oracle reiterated that Europe was not a headwind, despite being pressed by analysts. Several analysts, including Sherlund and Hickey, said a slowdown in IT spending might be forthcoming. On the other hand, Sherlund said that Oracle "sometimes out-executes after a bad quarter." He has Oracle rated buy, but lowered his price target to $32 from $34.

Recent results from Red Hat (RHT) and now Oracle are adversely impacting other IT stocks, such as VMware (VMW) and (CRM).

Piper Jaffray analyst Mark Murphy wrote in a research note that "it is rare for ORCL to miss its earnings forecast by this magnitude, suggesting that IT spending may be deteriorating rapidly." He rates shares overweight, but lowered his price target to $33 from $34.

As recently as earlier this week, several analysts have said that Europe is providing a buying opportunity in IT stocks, as the fears are not being realized.

Shares of Oracle were sharply lower Wednesday, off 13.66% to $25.19 on nearly three times the average daily volume.

-- Written by Chris Ciaccia in New York

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