Election Section

Oracle meets lowered expectations

The Associated Press
Friday March 16, 2001

SAN FRANCISCO — Software maker Oracle Corp. offered little hope Thursday of a quick recovery from a sudden sales slump that diminished its quarterly earnings, meeting analysts’ lowered expectations. 

For the three months ended Feb. 28, the Redwood Shores-based company reported net income of $582.7 million, or 10 cents per share. In the year-ago period, Oracle earned $763.2 million, or 13 cents per share, including investment gains. 

Two weeks ago, officials said a wave of last-minute sales losses would cause its earnings to fall below Wall Street’s consensus estimate of 12 cents per share. It marked the first time since December 1997 that Oracle has fallen shy of Wall Street’s earnings expectations. 

Oracle’s quarterly revenues totaled $2.67 billion, up 9 percent from last year’s $2.45 billion. 

In a conference call, management said the company is bracing for at least three more quarters of feeble demand. 

“Our assumption now is that things are not getting better and maybe they will get worse,” said Jeff Henley, Oracle’s chief financial officer. “I think it’s reasonable to think it will take a while to recover.” 

Oracle will likely follow in the footsteps of other tech companies and trim its payroll, but CEO Larry Ellison didn’t specify how many jobs might be cut. 

“You will see us controlling costs and one of the ways to control costs is to manage head count,” Ellison said. “There is no organization right now that isn’t being asked to do more with less.” 

As of Feb. 28, Oracle had 43,300 employees worldwide. In an interview, Henley said it’s unlikely Oracle will cut as deeply as fellow tech titan Cisco Systems Inc., which last week disclosed plans to lay off up to 8,000 workers. 

The sluggish climate comes at a particularly bad time for Oracle, because the next few months traditionally mark the high point of its business cycle. 

Oracle’s profit for this quarter should be about 15 cents per share, Henley said. The consensus estimate among analysts polled by First Call/Thomson Financial is 17 cents per share. 

“It looks like they are going to be slogging through a very tough period,” said industry analyst Bob Austrian of Banc of America Securities. “And the stock isn’t likely to go back up until we get through this malaise” 

The company’s stock has plunged 31 percent since its March 1 warning. Before Thursday’s earnings release, Oracle’s shares closed at $14.69, down $1.38, during regular trading on the Nasdaq Stock Market. 

In after hours trading, the shares recovered somewhat slightly, rising to $14.88. The shares are well below their 52-week high of $46.46 reached last summer. 

In a bit of heartening news, Oracle’s sales of its database products – the heart of its business – improved 6 percent to $823 million, slightly better than management predicted two weeks ago. At that time, Oracle warned its database sales might have decreased during the quarter. 

The news might ease fears that Oracle is losing market share to rival IBM Corp., which sells a lower-priced database product that might be more appealing as corporate customers pinch their pennies during the current slowdown. 

“Oracle is the dominant player in the database market, but their product is three to five times more expensive,” said Meta Group analyst Mark Shainman. 

“They should be steamrolling the competition, but they aren’t because of their prices. It would behoove Oracle to lower its prices now.” 

Oracle has no plans to slash price to “unnaturally create demand,” Henley said. 

Ellison said Oracle’s eroding sales have nothing to do with tougher competition. 

“It’s an economic issue,” he said. 

Sales of Oracle’s software designed for companies trying to automate their businesses on the Internet were disappointing. Oracle said its application sales grew by 25 percent to $249 million, less than the 50 percent improvement management projected two weeks ago. 

In quarter ending May 31, Oracle expect database sales to remain flat and application sales to increase by 15 to 30 percent, Henley said. 


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