Oracle shares shed value on analyst report

Lisa Baertlein

PALO ALTO: Shares of Oracle Corp. on Friday declined more than 13 per cent
after an analyst pared his third-quarter growth forecast for the company's core
business due to the demise of several Internet firms it supplied last year.

Investors sent Oracle's stock $3-9/16 lower to close at $23-9/16 after Morgan
Stanley Dean Witter Analyst Charles Phillips issued a report saying that
Oracle's database license revenue growth may fall victim to the dotcom meltdown.

In his report, Phillips left his fiscal third-quarter earnings estimate for
Oracle unchanged, but the negative comment was seized as a reason to extend a
three-week old slide in the stock. Oracle ended the week off 15 percent, its
sharpest one-week decline since November.

Database license software revenue is Oracle's bread and butter and accounted
for more than a third of the company's total sales in the second quarter of
fiscal 2001.

In the third quarter of last year, the Redwood City, Calif.-based company
derived about 10 per cent to 12 per cent of its database license revenue from
dotcoms, Phillips wrote in his report on Friday.

"Oracle had about 30 sizable dotcom customers last year that are no
longer around," Phillips said.

He estimated that those companies accounted for as much as 12 per cent of
last year's database revenue and said that the loss of those customers should
translate to a temporary dip in database license growth at Oracle.

Phillips lowered his third-quarter database license revenue forecast "a
tad", saying that he expects growth in the 10 per cent to 13 per cent range
compared with 32 per cent last year and 19 per cent in the second quarter of
fiscal 2001.

He maintained his strong buy rating on the stock and reiterated his forecast
for third-quarter earnings of 12 cents a share. Analysts polled by First
Call/Thomson Financial also expect the company to record earnings of 12 cents a
share and post total sales of $2.9 billion for the quarter.

Oracle's third quarter ends Feb. 28 and the company is slated to report its
results in mid-March.

"The $40 million in license revenue we took out of the quarter doesn't
move the earnings needle given the 5.8 billion shares outstanding. But the
reduction probably takes away any earnings upside," he wrote.

Phillips said he expects database license revenue to rebound in the fourth
quarter and noted that sales in Oracle's fast-growing applications business
appear strong as its 11i e-business software line gains momentum despite the
weakening economy.

Hot, hotly contested market

Oracle and International Business Machines Corp. are locked in a heated battle
to control the $8 billion database software market, which is expected to exceed
$12 billion by 2003.

An IBM spokeswoman said any dotcom related dips in database growth would be
an Oracle-specific phenomenon. She would not comment on the Armonk, NY company's
dotcom exposure or give specifics about database sales in its current first
quarter.

IBM has said that more than 1,000 customers have either replaced Oracle with
its database product or chosen IBM over Oracle in the past 18 months.

Oracle's dotcom exposure should not come as a surprise to investors, since
the company has advertised that it powers 93 per cent of all Internet IPOs,
Epoch Partners Senior Analyst Mark Verbeck said.

In researching bankruptcy records from busted dotcoms, Verbeck has found that
Oracle had taken payment up front from some of the fast-spending start-ups

"Those companies won't be back, but Oracle already got paid," he
said.

IBM has less dotcom exposure than Oracle, Verbeck said. But as the world's
largest computer maker, the company is vulnerable to the volatile equipment
sector.

IBM shares ended $1.71 lower, a decline of 1.5 per cent, at $112.32 on
Friday.

(C) Reuters Limited 2001.