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Oracle Stock Is Hit on Dip in Sales of New Licenses

September 13, 2003|Alex Pham | Times Staff Writer

Fearing a delay in the business-spending recovery, investors sent Oracle Corp.'s shares lower Friday after the database giant posted an unexpected dip in sales of new software licenses.

The Redwood City, Calif., company said sales of new licenses -- an indicator of corporations' willingness to spend -- dropped 7% in its fiscal first quarter, which ended Aug. 31.

Total revenue grew an anemic 2% to $2.07 billion, from $2.03 billion a year earlier. Nudged by cost cutting, net income jumped 28% to $440 million, or 8 cents a share, from $343 million, or 6 cents, a year earlier.

Analysts had expected earnings of 8 cents a share on sales of $2.14 billion, according to earnings tracker IBES International.

Oracle shares fell as much as 7% in Nasdaq trading Friday before recovering somewhat to close down 43 cents, or 3.3%, at $12.55.

The results were disheartening to investors who had raised their expectations for a high-tech recovery after positive reports by other industry bellwethers, said Mark Zandi, chief economist and co-founder of West Chester, Pa.-based forecasting firm Economy.com. Last month, PC powerhouse Dell Inc. said its second-quarter earnings jumped 24%, and chip behemoth Intel Corp. unexpectedly raised its revenue forecast for the current quarter as much as $400 million thanks to stronger demand for computers, cell phones and other devices.

"Investors have driven up tech stocks to fairly lofty levels," Zandi said. "They're just re-evaluating those expectations a bit."

Oracle's shares also suffered Friday because analysts expected the company to boost sales of new software licenses by 5% to $592 million, said John Van Decker, vice president at META Group, a Stamford, Conn.,-based technology consulting firm. Instead, new license sales, which can drive future support and upgrade revenue for the company, fell to $525 million, from $563 million.

"People bought a lot of software during the boom," said Simon Heap, vice president of consulting firm Bain & Co. in Boston. "This is a sector that overreached big time during the bubble. This is one more data point to suggest that we still have some indigestion out there."

Companies also are postponing big technology purchases until there is more certainty about Oracle's hostile bid to buy PeopleSoft Inc., a rival maker of business applications software, Van Decker said.

Oracle launched its offer, now valued at $7.5 billion, in early June. Since then, Pleasanton, Calif.-based PeopleSoft has completed its friendly acquisition of J.D. Edwards Inc. of Denver and leapfrogged Oracle to become the No. 2 seller of corporate software used to run such functions as payroll.

Oracle is the No. 3 seller of business software, but gets only 25% of its revenue from those products. The rest comes from its database software business.

Jeff Henley, Oracle's chief financial officer, told analysts during a conference call that "a slow start in the first quarter is not going to keep us from having a good year." But Van Decker said the sales slump could continue for weeks or months. Last week, Oracle extended its tender offer until midnight Oct. 17, and could extend it again.

"I do see people holding off spending because of the confusion over what happens to PeopleSoft," said Van Decker, who said Oracle's bid has lost significant momentum in recent weeks. He put the odds of Oracle's buying PeopleSoft at just 20%.

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