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Tuesday, June 23, 2009

One reason big tech will beat this quarter

Oracle reported earnings after the close today. The news wasn't bad. Revenue and profit were down single digits but earnings per share still managed to beat Wall Street expectations by a couple of pennies.

Signs of things to come?

Oracle's CFO indicated that the company executed extremely well this quarter and that sales of support contracts had a positive impact on the bottom line. The CFO singled out a strong dollar as one reason for the declines in sales and income.

On a year-over-year basis, Oracle's CFO is correct; the dollar is indeed significantly higher now than it was in last year's quarter. This is clear to see on the chart below.

On the other hand, looking at the dollar over the last few months, the chart shows that it has fallen roughly 10% since peaking in early March 2009.

Looking at earnings for the most recent quarter, tech stocks with significant international sales will benefit from the dollar dropping. Year over year, earnings may still look poor but it may not be so hard to beat analyst estimates for the current quarter with exchange rates cooperating as they have been for the last few months.

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