Oracle's rosy prophecy is wrong
posted 7:10am EST Fri Mar 02 2001
NEWS
Yesterday, Oracle Corp. became the latest software company to issue a profit
warning, despite its earlier predictions that sales and earnings increases would
keep it from decline. Oracle's third quarter ended on Wednesday, and CEO
Larry Ellison says the company would have had great earnings if "nervous
senior executives" hadn't stalled deals to buy Oracle software.
In December, Larry Ellison said Oracle was immune from the troubles the PC
giants were facing because it was an Internet infrastructure company. Oracle
execs also said its third quarter (which runs from December through February)
would show 15-20% growth in database software sales and 75% growth in
application software sales compared to the third quarter of the previous year.
There were some clouds on the horizon, however, when Morgan Stanley Dean
Witter analyst Chuck Phillips estimated last month that 10-12% of Oracle's
database sales came from dot-com companies last year and that at least 30 of
those customers had closed shop. After the markets closed yesterday, Ellison
and CFO Jeff Henley said database revenue was flat to slightly negative, while
applications sales grew 50% for the third quarter. This led them to predict only
a 10 cent per share profit, instead of the 12 cents/share analysts had been
expecting. Investors panicked in after-hours trading last night, dropping Oracle
stock 21% to $16.88 (on Island ECN--it's up to $17 something right now),
well down from the 52-week high of $46-7/16.
Ellison and Henley said sales in Europe and Asia are fine, and that domestic
sales were great in December and January, with everything looking good right
up until last Friday, when deals close to completion started being delayed by
companies' top execs who wanted to watch what the U.S. economy does over
the next couple of months. Despite the lost deals, the 10 cents/share figure is
up 25% from last year's 8 cents/share (excluding investment gains), Oracle's
total revenue is up 9% for the quarter, and operating margin is at 33% (up from
31% last year). The company's operating income should be about $900 million
(Wall St. was predicting $1 billion). And while software sales revenue went up
6%, analysts had been expecting 10% growth in sales revenue, and the profit
warning hurt the company.
CFO Henley says Oracle expects things to get better in the fourth quarter, but
admits that it's hard to offer solid guidance. Ellison, however, says that the
deals that didn't get done last quarter will be done this quarter, and that, "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." He also said Oracle will drop its employee numbers by not
filling the positions people leave.
Oracle joins Cisco, Microsoft, Sun, Apple, Dell, and other tech giants with
lowered profits.
For more information, please see the Reuters item and CNET.
SAM'S OPINION
I love it when big ego boy Larry Ellison gets slapped around. I know it's his
job as CEO to say dumb pie-in-the-sky crap like "we're better equipped to
deal with the slowdown than any other company on earth," but it's just so
typical of his arrogance that I have to laugh when he goes around blaming
nervous senior executives for something that's happening to almost every tech
company out there, namely experiencing problems from people being nervous
about the economy. Not many companies that want to stay in business will sign
huge multi-year multi-million dollar contracts when no one is sure what will
happen to the economy ... if Ellison got used to dot-coms with tons of
investment capital dropping cash in his wallet willy-nilly it's about time that he
woke back up to the reality of business.
That said, I am, as always, amazed that what would otherwise be an excellent
quarter growth-wise has brought Oracle a bunch of woe just because it wasn't
as stellar as had been hoped. I know that's how the stock market works and
has always worked, but I guess what bothers me about it is that I think the
market's investors and analysts got inflated senses of expectation from that year
or so of dot-com mania. When will those expectations return to normal? I
expect it will be a long time before investors readjust their outlooks, but have
the analysts made that shift back yet? I hope so.
The Reuters item ended with a great quote that sums up my nervousness over
the stock market. Mark Verbeck, Senior Analyst at Epoch Partners, said:
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.
Bingo. Like I've said a few times in past news items, there are so many people
now watching/investing in the market so much faster than before that their
uneducated (and honestly, most people who invest directly really don't know
anywhere near as much about how the market used to operate or do anywhere
near as much research about companies as they should) decisions fired by
faster news delivery and enabled by instant trading access via the 'Net have
made the market incredibly volatile. I admit that this may actually be the way
the market should behave--it is supposed to be for the investors, after all. It's
just that many people, including me, still think of the market in terms of the way
it used to run, and that's why these precipitous bubbles and ditches scare me
out of investing. |
