Oracle stung by weaker license sales

PALO ALTO/NEW YORK: The world's second largest software company reported a surprise slump in quarterly sales of new software licenses, spooking investors, despite a 28 percent jump in profit.

Shares of the bellwether for business software lost 3.3 percent in extremely heavy trade, as the weaker license sales chilled hopes that Oracle's results would be a harbinger of an incipient recovery in corporate spending.

"It does throw some cold water on the technology recovery story," Kaufman Brothers analyst Kevin Buttigieg said. "All along, the recovery was pretty uneven and I think this is a good testament to that."

Oracle, of Redwood Shores, California, had net income for its fiscal first quarter of $440 million, or 8 cents a share, compared with $342.7 million, or 6 cents a share, a year earlier.

Revenue for the period ended Aug. 31 grew just 2 percent to $2.07 billion from $2.03 billion, falling short of its target of 4 percent to 7 percent growth.

New software license sales, a closely watched measure of business momentum, were down 7 percent at $525 million, well short of the $592 million consensus estimate by Wall Street analysts. The company had earlier expected license revenue growth of between 2 percent and 12 percent for the quarter, which is traditionally its weakest.

"There is nothing really optimistic to glean from this," said David Hilal, an analyst with Friedman, Billings, Ramsey.

Hilal said investor disappointment could be pegged to the company's 7 percent decline in new database software sales. Oracle gets nearly 75 percent of its revenues from its flagship database business.

Industry analysts say technology giants International Business Machines Corp. and Microsoft Corp. are aggressively pushing into the maturing corporate database segment long controlled by Oracle, gaining share and putting pressure on Oracle pricing.

Looking ahead, Chief Financial Officer Jeff Henley told investors in a conference call he expected a modest pick-up in revenue in the second quarter but that new license sales could drag.

Henley projected revenues to rise between 2 percent and 5 percent for the current quarter ending in November. Sales of new licenses will range from a decline of 3 percent to a rise of 7 percent compared with a year-ago.

This will translate into earnings per share of 10 cents or 11 cents for the quarter, Henley said.

"A slow start in Q1 (first quarter) is not going to keep us from having a good year," Henley told investors. "We believe demand will show modest improvement" during the fiscal year, he said.

On average, analysts polled by Reuters Research had seen the company posting earnings of 11 cents a share on revenue of $2.43 billion, or at the high end of company forecasts.

Oracle has held down corporate expenses to preserve profits as new software license sales have declined in 9 of the last 10 quarters. Only in the fourth fiscal quarter ended in May 2003 did Oracle finally report a rise in license sales.

"We expect to see continued improvement in total revenue and new license growth in Q2 led by North America," Henley said.

Oracle finished down 43 cents at $12.55 on the Nasdaq, where 124.2 million shares changed hands.

Microsoft gained 50 cents to $28.34, also on Nasdaq. IBM ended 74 cents higher at $88.66 on the New York Stock Exchange.

News that Oracle's applications business was still weak pulled down shares of other business-management software makers. Siebel Systems Inc. was off 3 percent to $10.24. Germany's SAP AG, Oracle's biggest rival in the sector, lost just over 2 percent to close at $32.10 on the New York Stock Exchange.

PeopleSoft Inc., which Oracle is seeking to take over with a $7.3 billion hostile bid, shed 0.4 percent to $19.10. Deal watchers said this reflected the slow pace of review by antitrust enforcers in the United States and Europe.

© Reuters