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RE: Oracle Licensing

From: Eric D. Pierce <>
Date: Wed, 07 Mar 2001 10:57:28 -0800
Message-ID: <>

Oracle profit warning spells doom:

 Lowered spending for software has hit Oracle  where it hurts

 Oracle, the world's second largest software  company, on Thursday joined the list of  technology bellwethers warning that a slowing  economy would cause profits to come in lower  than expected.

 Oracle had been one of the few industry titans to  appear unscathed by corporate America's  reluctance to commit to big-ticket technology  purchases.

 With Thursday's announcement after the close of  trading, Oracle joined the growing list of high-tech  companies, including Cisco Systems, Microsoft  and Sun Microsystems -- that have issued profit  warnings or indicated that deteriorating economic  conditions likely will make for a difficult business  climate during the first half of the calendar year.

"We're seeing a very substantial slowdown in the
 US economy that is making people cautions in all  of their spending, including spending for  software," Oracle chairman and chief executive  Larry Ellison said.

 Oracle said its formerly bullish forecasts began to  crumble when senior executives in the United  States were reluctant to give final approvals as  Oracle pushed to close sales for its fiscal third  quarter, which ended on Wednesday.

"We didn't see a slowdown and that was

 consistent up until about last Friday," Oracle chief  financial officer Jeff Henley said.

"After that, every day it got worse. Literally the
 last day of the quarter we had a number of  transactions that didn't happen," he said.

 Oracle shares, which had rallied $2-3/8 to close  at $21-3/8, fell to a new year-low of $16.94 in  after-hours trading on the Island system. The stock  is well off its year-high of $46-7/16.

 Based on the slowing sales, Oracle now expects  to report earnings per share at 10 cents, up 25  percent from 8 cents a year ago, excluding  investment gains. The company had been expected  to earn 12 cents a share, according to First  Call/Thomson Financial.

 Ellison said Oracle's operating income would be  about $900m, compared with Wall Street's  forecast of $1bn.

 Oracle executives also said the company did not  yet see evidence that sales were slowing in Japan,  Asia and Europe.

"Through the third quarter, at least, there didn't
 appear to be any leakage abroad, but that doesn't  mean it couldn't happen," Henley said.

"It's just going to bring down the whole software
 sector. Obviously, no one's immune. I think the  whole group is vulnerable. This is the spill over  of technology," Credit Suisse First Boston analyst  Brent Thill said. "Software was the last standing  soldier."

 The software vendor said total revenue grew  around 9 percent for the quarter and software  license sales revenue rose by 6 percent. Of the  company's two software product lines, Oracle  said its applications business of enterprise and  front office software grew 50 percent while its  database business was flat to slightly negative.  Oracle is slated to give detailed fourth-quarter  financial guidance when it reports third-quarter  earnings on 15 March.

 In the months leading up to the warning, Oracle  said applications revenue would increase by 75  percent or more in the third quarter.

 Analysts had been lowering forecasts for Oracle's  database revenue -- which accounted for more  than one-third of the company's second-quarter  revenues -- citing a slowing economy and dot-com  failures. Nevertheless, many thought it would  grow by at least 10 percent.

"I was expecting things to not be great. But I was
 not expecting it to be this bad. I still thought the  database business would exhibit some growth,"  Epoch Partners senior analyst Mark Verbeck, said.

 While the warning marks the second time in a  decade that Oracle's earnings are expected to miss  forecasts, Ellison said the company's
 year-over-year profit and margins show
 improvement despite the tough economic

 Oracle's operating margin improved to 33 percent,  an increase from 31 percent a year ago, said  Ellison, who added that the company also will  continue to manage expenses by allowing its head  count to fall through natural attrition.

"As long as the economy doesn't get worse, we
 think we're going to be just fine. We think we're  better equipped to deal with the slowdown than  any other company on earth," Ellison said.

 Analyst Thill, however, sees more disappointment  to come.

 He said the software industry has been in a slump  for the past six months but stock prices haven't  bottomed out yet.

 Thill said he would not be surprised if shares of  some software companies slide another 15 percent  to 25 percent.

"I don't know what's going to fix this," Verbeck

"We're in this vicious circle where there's
 unprecedented interest by consumers in the stock  market. Even though the numbers in the economy  aren't bad, the sentiment is terrible. It becomes  self-fulfilling. It's not good," he said.


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Author: Eric D. Pierce

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Received on Wed Mar 07 2001 - 12:57:28 CST

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