Oracle net earnings down, forecast cut

Lisa Baertlein

PALO ALTO: Oracle Corp., the world's second-biggest software maker, on

Thursday said its fiscal third-quarter profit fell slightly from a year ago and

lowered its forecast for the current quarter, citing still-weak corporate

spending on technology.

"We're out of the business of predicting when this economy is going to

turn up in terms of capital spending," Oracle Chief Executive Larry Ellison

told Reuters Television.

The Redwood Shores, California, 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 said. 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 chief financial officer 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," said

Henley, who pinned about 80 percent of the blame for Oracle's third-quarter miss

on economic factors.

Having recently issued a string of overly optimistic forecasts, Henley

adopted a new "conservative" stance and trimmed his outlook for the

current quarter which ends in May. He said 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," said Patrick Walravens, senior
research analyst at Jolson Merchant Partners in San Francisco.

On the plus side, he said 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," said Walravens, whose firm does not have an investment banking

relationship with Oracle.

Analysts said 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

US 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 Corp. and International Business

Machines Corp.

The company that same month also slashed US prices on its business-automation

software -- or applications -- amid competition from such established players as

SAP AG, PeopleSoft Inc. and Siebel Systems Inc. "There's certainly

competitive issues ... In the apps space we did lose some momentum this

year," said 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," he said. To that, Sanford C. Bernstein analyst Charles Di Bona

was skeptical. "The real downturn in database seems to be

Oracle-only," he said.

"That high-20s percent decline in the databases reflects pricing

pressure on Oracle which is more Oracle-specific than just the economy," Di

Bona said.