PeopleSoft Warns Of Hefty 2Q Shortfall

The Pleasanton, Calif.-based enterprise software vendor said it now expects overall revenue to fall between $655 million and $665 million in the quarter, with license revenue expected to total $129 million to $133 million. The company previously said it expected $150 million to $170 million in license revenue, and Thomson Financial/First Call's consensus estimate had PeopleSoft's total revenue at $689 million.

PeopleSoft, which uses non-GAAP calculations for reporting earnings, said it expects pro forma earnings of 13 cents to 15 cents per share. The Wall Street consensus forecast was 21 cents per share.

PeopleSoft is scheduled to officially announce its second-quarter results July 27.

PeopleSoft CEO Craig Conway blamed the financial pinch on Oracle's hostile takeover bid. "The extensive publicity of the antitrust trial during the last month of our quarter was impossible to completely overcome," Conway said in a statement. "We believe the adverse impact to our business has been substantial, with even greater impact this past month."

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Though Conway's explanation may be true, many financial analysts said the expected shortfall reflects a poor fit between PeopleSoft and its year-old acquisition, J.D. Edwards.

"While it would be convenient to blame this miss completely on the Oracle trial, we think it affirms our fundamental thesis that there are no synergies from the J.D. Edwards/PeopleSoft merger. And the core PeopleSoft product cycle has been played out," Merrill Lynch analyst Jason Maynard wrote in his daily report.

Charles Di Bona, an analyst with Sanford Bernstein Research, attributed PeopleSoft's reduced forecast to a weak applications market and "more fundamental structural problems related to [PeopleSoft]."

"We have been and remain skeptical about [PeopleSoft's] ability to reap the top-line synergies and operating margin efficiencies from the [J.D. Edwards] merger that have been embedded in prior guidance and consensus estimates," Di Bona said in his newsletter. "We believe that the Q2 miss and related margin compression reflect some of these operational issues."

The software market overall may be taking a hit in the second quarter. In the past week, several software companies issued warnings of expected shortfalls, including FileNet, Veritas Software and SecureComputing.

PeopleSoft shares fell 32 cents, to $16.50, as of Wednesday afternoon. In other software-related trading, Microsoft shares slipped 2 cents after CEO Steve Ballmer sent employees a 4,900-word memo laying out plans to cut $1 billion in costs and boost innovation.