Oracle's Profit Is Expected To Drop as Sales Remain Soft
By MARCELO PRINCE
DOW JONES NEWSWIRES
NEW YORK -- Oracle Corp. is expected to report another period of shrinking earnings and revenue as software sales remain lackluster. But the database giant should meet consensus targets for its fiscal second quarter, analysts said.
The Redwood Shores, Calif., company is scheduled to report results for the three months ended Nov. 30 on Wednesday after the market closes. The company hasn't warned of a shortfall and most analysts expect few surprises.
At midmorning Wednesday, Oracle shares were down 45 cents, or 4.1%, at $10.57 each on the Nasdaq Stock Market.
The consensus forecast calls for net income to fall 20% to eight cents a share, from earnings of $549.5 million, or 10 cents a share, a year earlier. Revenue is expected to decline 6% to $2.22 billion.
Oracle has reported six straight quarters of declining revenue as it has struggled with increased competition, reduced spending on technology and weak demand for its products. In early November, Chief Financial Officer Jeff Henley said revenue would likely fall between 4% to 7% in the second quarter.
The company has predicted second-quarter software-license revenue will decline 10% to 15% from the $819.3 million it collected a year earlier. Oracle's services revenue should decline about 4% to $1.5 billion.
Most analysts are forecasting Oracle will come in at the lower end of its targeted licenses range -- $696 million to $737 million -- although some are more optimistic.
"Overall, the months of October and November for the software industry have been better than the September month," which was disappointing, Neil Herman, software analyst at Lehman Brothers, wrote in a recent note. He expects Oracle could report quarterly license revenue between $725 million to $735 million, driven largely by stronger-than-expected database sales.
Oracle's flagship database software, Oracle 9i, has faced intense competition from International Business Machines Corp. and Microsoft Corp. amid the market slump. Stepping up the pressure, IBM slashed prices on its DB2 database in November.
Some Oracle customers are postponing complex database projects or opting for the less expensive standard-edition version of its database. Oracle has also struggled with weak sales of its applications products, which are used to manage bookkeeping, employees and customers. Initially hampered by software glitches, the 11i suite still faces a soft economy and rivals pushing new upgrades.
Oracle faces stiff competition across its product lines and has seen "erosion of market share," notably in databases, Charles DiBona, analyst at Sanford C. Bernstein, wrote in a research note. These pressures continue, but Oracle's rate of deterioration will slow as its 9i database matures and its applications rivals complete their upgrades.
Mr. DiBona sees the potential for slightly stronger-than-expected revenue, but said operating margins likely declined in the second quarter as the company realigned its sales force and increased research spending.
Chris Shilakes of Merrill Lynch is also concerned about Oracle's ability to "hold margins at healthy levels in this challenging environment." He expects operating margins to decline to 31% from 35% a year earlier.
Oracle's outlook for the current quarter, which ends in February, will be closely watched. Most analysts expect the company will continue to be cautious since there are few signs of an imminent recovery in software spending.
The current consensus forecast calls for earnings of nine cents a share, unchanged from a year earlier. Revenue is expected to increase 5% to $2.32 billion, but license revenue is expected to decline slightly.
Write to Marcelo Prince at marcelo.prince@dowjones.com
Updated December 18, 2002 11:03 a.m. EST |
