Oracle Sees Flat Q2 Earnings, Lower Revenues

Oracle on Monday said it expects earnings in its current fiscal second quarter to match those from a year earlier even though software license sales will be hurt by business disruptions following last week's attacks on New York and the Pentagon.

Oracle shares, which slipped nearly 4 percent, to $11.01, when the Nasdaq resumed trade on Monday, climbed as high as $11.10 in after-hours activity on Instinet.

Jeff Henley, CFO for the No. 2 software maker, says earnings per share in the current quarter will match last year's 11 cents while software license revenues could be as much as 15 percent lower than the year-earlier quarter ended Nov. 30.

Absent the events of last week, the company likely would have forecast an 8 percent to 10 percent decline in license revenues, Henley said.

Redwood Shores, Calif.-based Oracle booked total revenue of $2.66 billion in last year's fiscal second quarter. License revenue accounted for $1.1 billion of that total.

Analysts' current consensus estimate is for Oracle to post flat second-quarter earnings of 11 cents a share on slightly higher total revenues of $2.67 billion, according to Thomson Financial/First Call.

Oracle, like many other high-tech companies, has been hurt by lackluster corporate technology spending and the failure of numerous dot-com companies.

"In light of these latest events in New York ... we're anticipating things will get slightly worse," Oracle chairman and CEO Larry Ellison said during a conference call with analysts. "This is an economy that is uncertain right now."

Prior to Tuesday's attacks, Henley says, "we didn't think things were going to get a lot better or a lot worse."

Revenue Adjustment Expected

"The good news is that Oracle does have the ability to manage their earnings," says Merrill Lynch analyst Chris Shilakes, who says he was not surprised by the company's guidance.

"They've got a great track record," says U.S. Bancorp Piper Jaffray analyst Jon Ekoniak. "I think they can do it."

Analysts have said that Oracle cannot cut costs forever, but have noted that it has not yet gutted its workforce or slashed research and development investments that are vital to its future growth.

Tuesday's attacks delivered a devastating blow to large software customers such as financial services firms, retailers and transportation companies at a time when software vendors have been grappling to deliver earnings growth.

"It's going to be very difficult for many companies to take a look forward here," Shilakes says. "It will take several weeks if not months to sort out repercussions. I don't think most large software companies are going to escape unscathed this quarter and into the fourth [calendar] quarter."

Dot-Com Hangover

Oracle released first-quarter earnings as scheduled on Thursday. The report was abbreviated and company officials canceled scheduled television and print interviews.

The company earned 9 cents a share in the first quarter--a penny better than a year ago--as cost-cutting efforts more than offset total revenues that fell, to $2.24 billion from $2.26 billion.

Oracle's software license revenues, which are a key measure of company performance, declined about 8 percent year-over-year to come in better than the company's lowered forecast.

Applications license revenues--including sales of Oracle's 11i e-business software--fell 6 percent while revenue from the company's flagship database software business slipped 8 percent.

"The fiscal first quarter was our third tough revenue quarter in a row," Henley said during Monday's conference call.

Particularly hard hit was Oracle's U.S. database revenue, which declined 26 percent year-over-year on the disappearance of once free-spending dot-com customers.

Oracle executives, who had previously expected business to pick up during calendar 2002, now think that a recovery could be delayed by last week's attacks that may have claimed more than 5,000 lives.

"We feel fairly good that our profitability is not diminished." Henley says. "We hope that this last week's tragedy doesn't cause wholesale economic damage."

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