Oracle Net Earnings Down, Forecast Cut

"We're out of the business of predicting when this economy is going to turn up in terms of capital spending,' Oracle CEO Larry Ellison says.

The Redwood Shores, Calif.-based database giant's net income slipped to $508 million, or 9 cents per share, in the quarter ended Feb. 28. In the year-earlier period, Oracle's net income was $583 million, or 10 cents.

That result was in line with expectations Oracle revised on March 1, when it warned that weak sales in Asia would cause per-share earnings to fall a penny short of its original forecast for a net profit of 10 cents.

Total revenue was $2.2 billion down from $2.7 billion a year earlier as overall sales of new database and business-management software posted a larger-than-expected double-digit decline.

Asia-Pacific database sales were off 34 percent, largely due to a "significant softening" in Oracle's Japanese business, executives say. Sales to the high tech, telecommunications and financial services industries also remained under stress.

"It's very sluggish and doesn't seem yet to be showing signs of recovery," Oracle CFO Jeff Henley said during a conference call with reporters. "Large customers just don't have an appetite to do big deals ... Every region missed their numbers."

Henley pins about 80 percent of the blame for Oracle's third-quarter miss on economic factors. Having recently issued a string of overly optimistic forecasts, he has adopted a new conservative stance and trimmed his outlook for the current quarter which ends in May. He says he now sees earnings falling 1 cent to 2 cents a share short of Oracle's 15-cent profit in the fourth quarter of 2001. He previously had forecast earnings that were 2 cents to 3 cents a share higher than that result.

Oracle shares finished Thursday's regular Nasdaq session down 45 cents, about 3 percent, at $13.44. The stock dipped to $13.16 in extended trade on Instinet following the release of the company's results.

Good Side/Bad Side

"Taken as a whole it's not good news," says Patrick Walravens, senior research analyst at Jolson Merchant Partners in San Francisco.

On the plus side, Walravens says investors will appreciate the company's more conservative outlook. On the other hand, Oracle's license revenues were worse than its warning seemed to indicate.

"The hole that they have to dig themselves out of is a little deeper and it's going to take them a little longer to do it," says Walravens, whose firm does not have an investment banking relationship with Oracle.

Analysts say Oracle is fighting tough battles on several fronts.

In particular, its competitors are bigger, better and more numerous at a time when its customers are reluctant to sign the multiyear, multimillion-dollar software deals that fueled Oracle's astounding growth during the recent tech boom.

Last summer, the tech titan responded to pricing pressure and the downturn in U.S. corporate tech spending by rolling out a lower-priced, stripped-down database. In the third quarter, revenue from that product was up 14 percent but total new database software sales were off 26 percent year-on-year.

Oracle's Japan subsidiary in January lowered database prices citing intense pressure from rivals Microsoft and IBM.

The company that same month also slashed U.S. prices on its business-automation software--or applications--amid competition from such established players as SAP, PeopleSoft and Siebel Systems.

"There's certainly competitive issues ... In the apps space we did lose some momentum this year," says Henley, who added that Oracle is not losing market share in its core database business. "We're pretty darn convinced this is more of a temporary phenomenon."

To that, Sanford C. Bernstein analyst Charles Di Bona was skeptical.

"The real downturn in database seems to be Oracle-only," Di Bona says. "That high-20s percent decline in the databases reflects pricing pressure on Oracle which is more Oracle-specific than just the economy."

Oracle shares, which are down 1 percent from a year ago, remain off their 52-week high of $20.84. Meanwhile, Microsoft stock--which ended Thursday's Nasdaq session 88 cents lower at $61.22--is up almost 14 percent during the same period.

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