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Oracle Beats Estimates But Warns on Outlook

By Keith Regan
Mar 19, 2003 10:58 AM PT

Number two software maker Oracle posted a strong third quarter, with earnings up 12 percent and a year-over-year revenue increase for the first time since 2001. Net income was US$571.3 million on revenue of $2.31 billion, up slightly from $2.25 billion during the company's third quarter last year.

Oracle Beats Estimates But Warns on Outlook

But as has often been the case recently, it was the company's uncertain outlook and not past performance that caught the attention of investors and analysts. Oracle shares traded lower after market close Tuesday and fell again Wednesday morning, trading down more than 4 percent to $11.75.

War Worries

In a conference call, Oracle CFO Jeff Henley, citing a "precipitous" falloff in new business during February, said revenue in the company's fourth quarter could be down as much as 6 percent from a year ago, though he also left open the possibility that sales could rise up to 2 percent.

Henley called the duration and severity of an Iraq-U.S. conflict a "wild card" that made predictions difficult. "The looming uncertainty of war has caused more deals to slip than normal," he added.

Although sales dropped most sharply in the Middle East, he said, "many regions had trouble closing deals they had forecast."

Look Out Below

In addition to the wide revenue forecast range, Oracle said software licenses could fall as much as 15 percent or could rise 5 percent. Analysts have been watching Oracle for signs of changes in licensing revenue since it launched its All-in-One approach earlier this year.

Gartner research director Brian Zrimsek told the E-Commerce Times that it may take a while before enterprises adopt Oracle's recently announced all-in-one licensing program. Gartner believes the alternative, which is similar to software pricing plans announced by Sun and others, needs to result in 10 to 15 percent annual licensing revenue growth to be worth Oracle's while.

"Enterprises that are looking to be better able to predict future costs will be attracted to it," Zrimsek said. "But the bottom line in this market is still cost, and this doesn't necessarily mean that the bundle will cost less."

Sustained Demand Needed

Morningstar.com stock analyst Mike Trigg said that although Oracle has managed to keep pace with its own predictions of revenue growth, investors will demand that the trend be sustained before rewarding the company.

"They have repeatedly said they've seen the bottom, which seems to be borne out by the numbers so far," Trigg told the E-Commerce Times. But, he added, the warning about deal closings dropping off at quarter's end is unsettling news.

The earnings report was the first from Oracle since a recent IDC report claimed the Redwood Shores, California-based company had begun to lose market share in its core business area of relational database software. IDC said Oracle now holds a 39.4 percent share of the market, compared with 41.7 percent in 2001, while both IBM and Microsoft have made gains.

Outsourcing Bright Spot

Oracle CEO Larry Ellison said the company's "shining star" during the quarter was its outsourcing business, which grew 80 percent year-over-year.

Demand for outsourcing appears to be counter-cyclical, Ellison added, increasing in the face of economic woes. He said JDS Uniphase has turned over operation of its e-business software to Oracle and added that he expects additional work to come through IBM, which is pushing its own outsourcing initiative.

"This is a very, very encouraging development," Ellison said.

Meanwhile, Henley said Oracle does not plan major layoffs, although its headcount likely will drop by a few hundred workers worldwide as it continues to "whittle away at excesses and consolidate."

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