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PeopleSoft down on testimony, forecast

Investors react to a disappointing earnings projection and to testimony that dampens hopes of negotiations with Oracle.

Despite a general rally in the markets Monday, PeopleSoft shares traded down as a double whammy of news surrounding the enterprise software company filtered out, analysts said.

Shares of PeopleSoft fell by 63 cents, or nearly 3 percent, to close at $22.20 on the Nasdaq. Analysts attribute the drop to a disappointing forecast from PeopleSoft that, while its revenues would greatly exceed analyst projections, earnings would only meet them.

Analysts also said that testimony coming out of the newly started Delaware Chancery Court trial, which involves Oracle's hostile takeover bid, may also be dampening investors' hopes that PeopleSoft would be willing to sit at the negotiating table with Oracle. When PeopleSoft fired its chief executive, Craig Conway, on Friday, many analysts viewed it as a sign PeopleSoft was willing to begin talks with Oracle, which has waged a protracted 15-month battle for the company.

During the court hearing, in which Oracle is trying to remove PeopleSoft's antitakeover measures, a PeopleSoft director testified that Conway was fired for being less than truthful in his comments to Wall Street analysts, not because there had been any disagreements over whether the Oracle bid should be accepted or rejected.

"The analyst community felt that because he was adamantly against the Oracle bid, he was fired," said Clark Chang, a senior software analyst with Fulcrum Global Partners. "But the news coming out of the Delaware courts is affecting the stock."

Other analysts, however, point to the disappointing third-quarter forecast PeopleSoft released prior to the opening of markets. The company said it expects to generate between $680 million to $695 million in revenues for the quarter, compared with analysts' expectations of $663 million. But PeopleSoft also said it expected to remain in-line with analysts' earnings forecast of about 14 cents a share.

"It's very unusual for an enterprise software company to have a 20 to 25 percent upside on license revenue but have their (earnings per share) at or below analysts' consensus levels," said Bert Hochfeld, an analyst with the Hochfeld Independent Research Group.