Oracle Corp’s disappointing quarterly earnings could be an early indicator of sluggish IT spending by US and European clients over the next two quarters.

This could be a worrying sign for Indian IT companies, as a major chunk of their revenues are from implementing software packages of companies such as SAP and Oracle.

The Nasdaq-listed business software-maker reported a flat third-quarter earnings (ended February). It posted $2.3 billion in licence revenues, a two per cent fall on a year-on-year basis (in constant currency terms), and below street expectations.

“Indian companies do a lot of work on Oracle platforms and software, and new software licence sales and cloud software subscription revenues witnessing a decline is potentially negative for Indian companies,” Harit Shah, Senior Research Analyst (Institutional Equities) at brokerage firm Nirmal Bang, said.

“The impact could be spread over the next two quarters,” he said.

The decline is partly due to subdued business activity owing to the year-end, while Oracle’s fourth quarter guidance “implies uncertainty” of business pipeline.

Most of the Indian companies, including tier-I companies such as Tata Consultancy Services, Infosys, Wipro and HCL Technologies implement Oracle’s software for clients.

According to brokerage firm Nomura, Oracle’s licence sales growth is an early indicator of a pick-up in discretionary spending for IT services companies, and the muted performance could “temper exuberance in street expectations for IT service companies.” “We continue to expect a moderate acceleration in growth for tier-I IT in FY14 (v/s FY13),” it added.

“We cannot say anything based on a single quarter result, but the mood in the market is not encouraging,” said Jagannadham Thunuguntla, equity head at brokerage firm SMC Capitals.

rajesh.kurup@thehindu.co.in

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