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Oracle Needs to Strengthen Cloud Presence

Tickers in this article: IBM CRM ORCL

REDWOOD SHORES, Calif. ( TheStreet) -- Oracle(ORCL) , which reports its third-quarter results after market close on Tuesday, needs an improved performance to counter the recent strong numbers from rivals IBM(IBM) , SAP(SAP) and cloud specialist Salesforce.com(CRM) .

While the tech sector has enjoyed a rebound in early 2012, there are lingering concerns about Oracle's ability to continue this trend. Analyst firm Jefferies, for example, recently downgraded Oracle from buy to hold, citing increasing challenges to growth.

Oracle reports its third-quarter results after market close on Tuesday.

The database giant reported disappointing second-quarter numbers in December, prompting a selloff in software stocks. Oracle missed analysts' earnings estimate, and, despite a 7% year-over-year hike in software revenue, reported a decline of 10% in revenue from hardware systems products and support. Revenue from the company's services business was flat.

Analysts surveyed by Thomson Reuters are looking for Oracle to report revenue of $9.02 billion and earnings of 56 cents a share after market close on Tuesday, compared to $8.8 billion and 54 cents a share in the prior year's quarter.

"The first thing we believe investors will focus on this quarter is simply whether Oracle is able to bounce back from a disappointing fiscal second quarter," explained Patrick Walravens, an analyst at JMP Securities, in a recent note. A key metric will be Oracle's ability to reach its goal of selling 300 Exadata and Exalytics boxes, according to Walravens, improving its hardware results.

The analyst adds that Oracle must also deliver an effective strategy for cloud computing, an area where rivals such as IBM and Salesforce.com (CRM) are already enjoying success .

"Investors will want to hear how Oracle plans to combine its various assets to compete more effectively against cloud computing vendors like Salesforce.com and Workday," explained Walravens. "These assets include the new Fusion Applications, the recently acquired RightNow Technologies, the soon to be acquired Taleo, and the Oracle Public Cloud, which is currently in a limited availability mode."

Oracle CEO Larry Ellison unveiled the Public Cloud last year, deriding Salesforce.com's cloud offering as a "roach motel," further fueling the feud between between the two companies.

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Macquarie Equities Research analyst Brad Zelnick expects that Oracle's third-quarter results will likely exceed expectations, despite "mixed inputs" from the field.

"The data suggest business remains somewhat challenging in the Americas, with prolonged Exa- sales cycles and steady pressure from cloud competitors like salesforce.com and Workday," he explained, in a recent research note. "On a positive note, we are hearing of strong early interest in Oracle Big Data solutions and see Oracle as well positioned to ride the Big Data wave. Further, we believe the EMEA region is healthier than consensus fears with the Feb quarter likely benefitting from solid large deal activity."