Economy, Fewer Upgrades Pinching Oracle

Earnings projections below expectations; IT says spending unchanged

According to Larry Ellison, Oracle Corp.s missed projections for its third-fiscal-quarter earnings were a result of the uncertain U.S. economy and not competitive pressures.

Oracle earnings for the quarter ended Feb. 28 came in at 10 cents per share, slashing by nearly 20 percent analysts expectations of 12 cents per share.

Ellison, Oracles chairman and CEO, along with company Chief Financial Officer Jeffrey Henley, expressed surprise at the numbers—as did analysts, some of whom were expecting Oracle to come in above Wall Street analysts expectations. "Going into as late as last Friday [Feb. 23], we still felt very good about our quarter," said Henley at a teleconference with analysts two weeks ago. "Then ... we saw a few cracks, and by Wednesday [Feb. 28], a significant amount of [IT spending] deals were deferred."

According to Ellison, many of those deals, which were to happen during Oracles third fiscal quarter, had made it through customers senior management approval stage but were postponed at the CEO and CFO levels. "I think we have a lot of nervous senior executives looking at the economy and being very cautious," said Ellison, also on the analyst call from Oracles headquarters in Redwood Shores, Calif.

Oracle plans to announce its official financial report March 15. Despite Oracles projected earnings miss, the companys estimated earnings per share is up 20 percent from the same period a year ago. Operating margins improved 2 percent, from 31 percent to 33 percent, for the same period.

One alarming point of interest, according to analysts who predicted as much as a 15 percent gain, was Oracles report of flat or slightly negative database revenue growth. In the analyst meeting, Ellison stressed that the earnings per share and database numbers are down simply because IT spending on large projects is on hold for 30 or 60 days while senior managers wait to see what happens with the economy—and not by virtue of competitive losses.

Jon Ekoniak, an analyst with U.S. Bancorp Piper Jaffray Inc., in Menlo Park, Calif., agreed that the economy is wreaking havoc on Oracles numbers as opposed to a potential product or competitive problem. Nonetheless, Piper Jaffray has lowered its revenue expectations for Oracles fiscal 2002 from $14.25 billion to $13.2 billion. In addition, the companys earnings-per-share expectations were lowered from 63 cents to 54 cents.

Ekoniak estimated the devaluation could cut Oracles stock price by $3.50. However, a loss in the companys stock price may not be enough to affect IT spending. "IT spending is really what drives everything else," Ekoniak said.

But not all Oracle customers are decreasing their IT spending. "Right now, our business is showing no downturn at all," said LouAnna Notargiacomo, manager of secure database technology at Trusted Computer Solutions Inc., in Herndon, Va.

Notargiacomo said her company will probably adopt Oracle9i eventually, but it has no definite plans as to when. "We will wait a while for it to stabilize before we switch," she said.

Another Oracle customer, CyberBills Inc., recently adopted Oracle8i. But since the company is still in the early phases of using that version, it, too, has no immediate plans to upgrade to 9i, said William Miller, vice president of engineering at the San Jose, Calif., company.

"Our budget for fiscal year 2001 was established last September. And there has not been a reduction [in IT spending] for us at all," Miller said. "We are spending against that budget just to upgrade to Oracle8i the first of this year.

"At some point, we will evaluate Oracle9i. But that most certainly will not happen until late this year."