Oracle Q3 meets lowered expectations, outlook difficult

Lisa Baertlein

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

Thursday the weakening economy hit database and application software sales in

the last quarter, and that it expects the US economy will continue to erode.

The Redwood Shores, Calif.-based company said its third-quarter earnings rose

to $583 million, or 10 cents a share, from $503 million, or 8 cents per share,

in the year-earlier quarter. The results were in line with Oracle's warning on

March 1, when it cut its forecast to 10 cents per share from the 12 cents

analysts were expecting.

"We're assuming that the economy gets a little worse in Q4 than Q3. What

the economy does, we'll do," Larry Ellison, Oracle's founder and chief

executive, said in a conference call with analysts.

The company said it was too difficult to pin down a forecast for its key

fourth quarter, which traditionally has generated about one-third of its total

sales.

"If you asked me to guess right now, (total license revenue growth)

would probably be zero, with flat earnings. No better, no worse, just holding

our own," chief financial officer Jeffrey Henley told Reuters in an

interview.

Staff reductions to continue



The company also said it was controlling costs to cushion the effects of the
economic downturn and that it would continue to reduce the size of its staff and

improve efficiencies.

"By and large, with the exception of R&D (research and development),

Oracle should consistently be reducing head count in virtually every area,"

Ellison said.

The company did not say if the reductions would be through attrition or if

layoffs were in the works.

Quarterly revenues rose to $2.7 billion from $2.4 billion a year earlier, as

database revenues grew 6 per cent, more than expected, and applications revenues

grew 25 per cent, less than the 50 per cent the company forecast on March 1. The

company had previously forecast 10 per cent to 15 per cent database growth but

later said it would be flat to slightly negative.

Ellison said the miss came after certain customers in the United States were

reluctant to issue final spending approvals as Oracle pushed to close sales in

the waning days of its third quarter.

As a result, license revenues in the Americas were hard hit after posting two

consecutive quarters of 34 per cent growth. Those sales, which account for more

than half of the company's quarterly license revenue, shrank 4 per cent as deals

disappeared from the pipeline and dotcom purchases dropped 66 per cent

year-over-year.

'Pretty disappointing'



"Given that we were looking for applications to drive this business
forward, this is pretty disappointing," said Mark Verbeck, senior analyst

at Epoch Partners in San Francisco.

Oracle shares finished the regular trading session at a new 52-week low of

$14-11/16 before the company's after-hours announcement pushed shares to $14.91

on the Island system.

Software stocks went into a tailspin after Oracle's March 1 warning that its

core database business would stall. Oracle reports its results about a month

earlier than its peers and some analysts use its flagship database sales to

gauge the health of the sector since most software programs require a database

to store the information they create.

"Clearly, in this economic environment, customers are taking a hard look

two or three times at the big ticket items in their information technology

budget, and applications still tend to carry a big ticket," said Chris

Shilakes, an analyst at Merrill Lynch.

(C) Reuters Limited 2001.