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Oracle Buys MICROS to Expand into Hospitality Industry

Posted on Wednesday, Jul 23rd 2014

Last month, Gartner released their outlook on worldwide IT spending and revised their global IT spending projections to growth of 2.1% over the year to $3,749 billion. Earlier, Gartner had projected a growth of 3.2% in IT spend for the year. Gartner believes that continued price pressure driven by increased competition and lack of product differentiation has hurt the short-term IT spending outlook. For 2015, Gartner expects IT spending to increase 3.7% over the year. During the current year, the biggest growth will be seen in Enterprise Software sales, which are projected to grow 6.9% to $321 billion. Spend on IT services will improve 3.8% to $967 billion and Devices will grow 1.2% to $685 billion. Spending on Telecom Services will see a modest 0.7% growth to $1,635 billion while Data Center Systems will see a mere 0.4% improvement to $140 billion.

Oracle’s Financials
Oracle’s (Nasdaq: ORCL) fourth revenues grew 3% over the year to $11.3 billion, short of the Street’s estimated $11.48 billion. EPS of $0.92 was also short of the market’s projected earnings of $0.98 per share.

By segment, revenues from new software licenses remained flat at $3.77 billion. Software-as-a-Service offerings continue to drive Oracle’s performance and for the quarter, cloud-based SaaS revenues were up 25% to $322 million and Cloud Infrastructure-as-a-Service revenues grew 13% to $128 million. Software license and support revenues grew 7% over the year to $4.7 billion. Hardware revenues have also improved with the Hardware Systems segment reporting a 2% growth to $1.47 billion. Services revenues fell 4% to $940 million.

Oracle’s results may have been a disappointment, but the company insists that they are on the right track as they are selling more and more cloud and SaaS-based offerings, paving way for the future.

Oracle ended the year with revenues growing 3% to $38.28 billion and an EPS of $2.38.

For the current quarter, Oracle expects revenues to grow 4%-6% with an EPS of $0.62-$0.66 compared with the Street’s estimates of revenue growth of 4.7% and an EPS of $0.64.

Oracle’s MICROS Acquisition
As part of their portfolio expansion, Oracle continues to aggressively invest in acquisitions. Early last month, Oracle announced the $5.3 billion acquisition of MICROS Systems. Analysts believe that over the past few quarters, Oracle has failed to deliver strong results on organic performance and possibly a big acquisition like that of Micros will help them deliver the much needed boost.

MICROS Systems offers both software and hardware related to point of sale systems for the restaurant, hospitality, and specialty retail stores. During the last quarter, they earned nearly two-thirds of their revenues from maintenance services. 23% of their revenues came from hardware and the remaining 11% revenues from software sales. Their products have been deployed in more than 330,000 sites across 180 countries worldwide. Their customer list includes names like Hyatt, Hilton, Yum! Brands, Burger King, Adidas, and IKEA.

MICROS has been seeing strong revenue growth and saw a 15% increase last year to $1.29 billion. They were projecting revenues of $1.37 billion in 2014. Oracle had also evaluated this acquisition nearly six years ago, but at that time, the talks had fallen through. This is the second biggest acquisition for Oracle after they had made the $7.8 billion acquisition of Sun Microsystems a few years ago. The deal will not only help Oracle grow their software revenues, but also expand their presence in the hospitality and retail industry.

The MICROS acquisition may just be the beginning of many more acquisitions to come. Analysts believe that in the next two years, Oracle will spend $15 billion-$20 billion on acquisitions to help grow their top and bottom line. At the end of the last quarter, Oracle had nearly $39 billion in cash and marketable securities. Surely, they will be willing to invest a big chunk of that to drive growth.

Oracle’s stock is trading at $40.05 with a market capitalization of $178.4 billion. It touched a five year high of $43.19 earlier last month in response to the announcement of the acquisition.


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