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Oracle taken down a notch

Oracle stock fell more than three points in morning trading after an analyst report said its earnings had fallen short of expectations.

Oracle's (ORCL) stock fell more than three points in morning trading after an analyst report said that its earnings had fallen short of expectations.

The company yesterday reported a 31 percent increase in profits for its second quarter while operating expenses were kept in check. This morning, Oracle's stock fell as low as 43-1/4, down from yesterday's close of 47-1/4.

Despite its 49 percent revenue growth in the Americas and 44 percent growth in its Asia-Pacific region, its Europe, Middle East, and Africa regions rose only 16 percent compared with a year ago, raising analysts' flags.

Smith Barney is maintaining its "buy" rating for Oracle stock but is upping risk to high. "We are concerned with the lack of sales execution in Europe, where revenue grew at only 16 percent year over year," said a Smith Barney analyst in a research report.

This slow growth compared to other regions comes after the appointment of a new head of European sales, Pier Carlo Falotti.

"The European sales force does not have the applications focus that the North American operations enjoy and sees more pressure in this business," the analyst added.

The database maker reported net profits of $179 million, or 27 cents a share, for the quarter ending November 30, up from $137 million or 20 cents a share a year earlier. Wall Street had been expecting a slightly higher performance of 28 cents a share, according to First Call.

Oracle revenues rose 36 percent to $1.3 billion for the quarter compared with $967 million for the same period a year ago. The revenue growth was driven chiefly by a 48 percent increase in the company's support, consulting, and education services. This division alone generated $687 million for the quarter.

"A second cause for concern is the company's revenue mix. This quarter represents the first time in the company's history that services revenue was higher than product revenue in the second quarter," said the report.

Licensing revenue from its core database product line and its client-server applications division grew 24 percent to $624.1 million over a year ago. Of that segment, however, applications licenses grew 77 percent, compared with only 27 percent growth in the previous quarter.

"Since license revenue is a higher-margin contributor and generally a better predictor of future growth, this clearly is cause for concern," said the report.

Other analysts were also concerned with the Wall Street miss. Cowen downgraded it the company's stock from "strong buy" to "buy." But Alex. Brown & Sons held its rating of Oracle's stock as a "strong buy."

In other news, Reuters reported that telecom operator Belgacom SA today said it signed an agreement with Sun Microsystems and Oracle to develop network computers in Belgium.