Analysts cautious over Oracle results

Lisa Baertlein

PALO ALTO: Analysts polled by research firm Thomson First Call on average now see the Silicon Valley technology icon posting a per-share profit of 8 cents on total revenue of $2.22 billion -- down from 10 cents and $2.38 billion a year ago, and at the low end of Oracle's forecasts.

Oracle has pushed that goal out to the second half of calendar 2003 on continued uncertainty around corporate spending patterns and worries about weakness in Europe.

In September, Oracle gave a conservative second-quarter forecast that called for a profit of 8 cents to 9 cents a share on software revenues that are down 10 percent to 15 percent from $803.4 million the year-earlier period ended November.

"In addition to being exposed to overall IT spending levels, Oracle continues to face stiff competition across its product lines and, over the last 18 months, has seen erosion of market share, notably in databases," Sanford Bernstein analyst Charles Di Bona said in a research note on Monday.

Absent any surprises, combined sales of Oracle's flagship database software and newer applications to automate such things, as accounting and customer service will show their seventh straight quarter of year-over-year declines.

"Still, the rate of deterioration of Oracle's performance from these forces may be beginning to slow," said Di Bona, who added that he expects applications to continue to be weak, while databases perform well relative to expectations.

Oracle has struggled to expand its applications business after tripping at the starting line with a buggy product. While that problem has been largely solved, the code is now competing with rival programs from strong players like SAP AG, PeopleSoft and Siebel Systems Inc.






Sales of Oracle's high-end databases got hammered by the dot-com and telecom busts, and have remained lackluster as corporations all but stopped making million-dollar high-tech investments. Selling the company's standard databases also has gotten harder as industry giants Microsoft and International Business Machines Corp go after that same business.

On other fronts, Di Bona said Oracle's operating margins -- the industry's second best after Microsoft Corp are under pressure as Oracle increases spending on research and development and reorganizes its applications sales team.

Lehman Brothers analyst Neil Herman had a rosier view.

"We expect Oracle to show a very solid quarter and believe that our estimates may well prove to be conservative for the February quarter," Herman said in a note on Monday.

In a report last week, Herman said Oracle could post license sales at the high end of the company's forecast, which works out to between $682.9 million and $723.1 million.

"If we are right, then Oracle and the rest of the software sector may well rally late in the week," Herman said Monday, adding that Oracle shares were down 6 percent last week.

Patrick Walravens, an analyst at San Francisco's JMP Securities, said he heard Oracle bagged a database deal with the U.S. government that's valued at more than $10 million.

That being said, Walravens continues to have "serious concerns" about the economy in Europe and expects weak software spending by European enterprises -- which contribute about one-third of Oracle's revenue.

"We would not be surprised to see Oracle temper expectations for (third-quarter) license revenue," he said.

Walravens is forecasting license sales of $805 million, but said Oracle could take that number to around $790 million.

Oracle had new license sales of around $777 million in the year-ago quarter, so even the lower number would be in-line with Oracle's previously stated hope for a return to positive license revenue growth in the second half of fiscal 2003.

"It would suggest they're about to turn the corner," Walravens said.

"It's taking a little longer to turn the corner than we thought it would," he added.

 

© Reuters