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How US Dollar Affected Oracle’s Fiscal 2Q18 Earnings

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Geographical revenue in fiscal 2Q18

North America and Latin America continued to be the largest market for Oracle (ORCL). The Americas region continued to account for 56% of its total revenues in fiscal 2Q18. The EMEA (Europe, the Middle East, and Africa) region contributed 29%, while the Asia-Pacific region including Australia, India, and South Korea (EWY) stood at 15% in fiscal 2Q18.

This geographical contribution makes Oracle’s top line vulnerable to the fluctuations in the US dollar (UUP). Tech players like IBM (IBM) and MSFT (MSFT) also face a similar situation.

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Factors that weighed on US dollar

In 2017, the US Dollar Index depreciated against the majority of currencies despite an upbeat US economic performance. While the relative improved performance of other developed economies benefitted their currencies, US political tensions with North Korea and Russia and disappointment over President Trump’s agenda caused the dollar to fall steadily until September 2017.

In 2017, the dollar index fell 9.0%. It was one of its steepest annual declines since 2003 when it dropped 14.7%, according to Reuters. The fall in the US dollar benefitted Oracle and peers in 2017. In fiscal 2Q18, its top line got a 2% revenue boost though it was lower than the previous forecast of up to a 3% boost to revenue growth.

The dollar started gaining strength in the fourth quarter on the back of the Fed’s interest rate outlook, Congress passing the US tax reform bill, and other US economic factors. On December 20, the Senate passed the tax bill, which was then signed by President Trump before Christmas.

These factors could keep supporting the US dollar in 2018. Better-than-expected inflation figures could lead the Fed to raise the interest rate three times in 2018, which would again be a positive for the US dollar.

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