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2HRS2GO: Oracle grows up

    COMMENTARY--Mark this event in history: Larry Ellison publicly admitted he has no clue about something.

    The chairman and CEO of Oracle (Nasdaq: ORCL) is infamous for having an answer to everything--not necessarily a bad thing from a pundit's point of view--but the U.S. economy humbles everyone.

    Oracle, the company that wants to tell you how to run your business, now says it's not sure how its own business will perform over the next few months. The company reduced its fourth-quarter goals, but openly acknowledged that it's guessing.

    "I don't know anyone that can tell me with a definitive answer what's going to happen with the U.S. economy, let alone the European economy or the Japanese economy," Oracle Chief Financial Officer Jeff Henley said in a telephone interview last night.

    His comments echoed Ellison's statements made earlier in Oracle's quarterly conference call with analysts.

    The uncertainty is understandable. Corporate profit warnings over the last few months indicate that almost every company is helpless in the near-term. Given that Oracle sells its database and applications software to those same companies, Ellison and his management team can't be expected to have a clear picture.

    But for Oracle to reveal its vulnerability? The corporate world's nervousness must be reaching depths not seen in several decades, if ever.

    Oracle conference calls typically overflow with braggadocio. Ellison will ramble about strong pipelines, contract wins, plans to attack competitors (wasn't Oracle supposed to overtake Siebel (Nasdaq: SEBL) in customer relationship management software by now?), the superiority of integrated suites and anything else he can think of to promote his company.

    The audience for yesterday's call heard a little bit of that. Ellison made sure to reiterate his belief that enterprise suites are a more economical approach than the "best of breed" philosophy of coupling individual applications. Although by citing "best of breed" as a comparison, Ellison sounded like he was saying his company's products aren't as good as their various rivals."

    "I've cautioned Larry not to say 'best-of-breed,' but it's an industry-standard term," Henley said. "More often than not, we're as good or better" than the competition.

    Critics and pundits poke fun at Ellison's carnival-barker tendencies, but his shilling works, at least with some analysts.

    Credit Suisse First Boston and CIBC World Markets continued to buy into the promotion of the long-term Oracle story until today. Only this morning did those investment banks finally downgrade Oracle, even though the company's woes have been known since the beginning of March, when Oracle first warned of a weak third quarter.

    CS First Boston and CIBC only yielded when Ellison himself went bearish on the future.

    "We are going to be reflective of the economy. We are making the assumption that it will be flat growth," told analysts yesterday. "In terms of the management team making decisions, running the business and controlling costs, we're going to be very cautious."

    Most investors already were. Shares of Oracle fell 70 percent from their 52-week high before the third-quarter report. The stock was down less than 4 percent early this afternoon, and some of that sell-off was probably related to today's triple witching, as futures, stock options and index options expired today. Wall Street was braced for a pessimistic forecast.

    Oracle's performance may even indicate a bearish bottom. When the most optimistic company in the industry starts quaking about the immediate future, sentiment isn't likely to get much worse, unless the economy completely collapses.

    That doesn't mean things will get better soon. They probably won't. Henley pointed out that the tech industry took a year to recover from the last major economic blow, the Asian economic crisis of the late ྖs.

    But it's refreshing to hear Oracle's worries. People thought Ray Lane's departure as company president last year would loosen Oracle's grasp of reality. It obviously didn't. Ellison seems more grounded than ever.

    A wall of bad economic news will do that to a person. And maybe not having the safety net of a president who could cover for him has made Ellison more conservative. When Lane was around, Ellison could say anything, secure in the knowledge that Lane would correct any missteps.

    Although executives such as Henley are still around for some of that, maybe Ellison realizes he has to be more careful. Maybe with Lane's departure and the arrival of an economic slowdown, Ellison and Oracle are becoming adults, at least for now. 22GO >