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Sybase warns of shortfall

The database software maker expects to report fourth-quarter earnings well below analysts' estimates, sending its stock plummeting in morning trading.

Database software maker Sybase (SYBS) said today that it expects to report fourth-quarter earnings that are well below analysts' estimates, sending its share price plummeting 33.3 percent in morning trading.

The company said in a statement that results See related story: 
Database firms under pressure. could range from a loss of as much as 7 cents per share to a profit of as much as 2 cents a share. Analysts were expecting the database maker to post profits of 12 cents a share, according to First Call.

Its stock fell as low as 8-7/8 in morning trading, before finishing the day at 9-15/16, down 3-3/8 over Wednesday.

According to Sybase, the earnings shortfall comes largely due to sluggish sales of its database licenses in North America and secondarily to the economic turmoil in Asia that has prompted the company to require four countries to pay cash for its goods.

The unexpected drop in North America database licenses came in a quarter that is usually the company's strongest.

"It was a mixed bag this quarter," said Sybase chief executive officer Mitchell Kertzman. "It was a good quarter in Europe and Japan, and there was a strong demand in orders in Asia...but the disappointment was in North America. So this tells me it was an execution problem."

[Kertzman is a member of CNET: The Computer Network's board of directors.]

Kertzman equated the quarter to a juggler spinning plates--although the company managed to get some countries revved up, it took its eye off North America and that plate dropped.

Database makers in general have had a tough time of late. Oracle and Informix have been hit with sales slowdowns similar to those of Sybase and have squeezed profit margins as database servers lost ground on previous double-digit growth. Oracle, for example, recently surprised Wall Street by posting first-quarter licensing sales that were far below analysts' earlier estimates.

The economic crisis in Asia also hit Sybase's bottom line, but to a lesser degree than its trouble in the North American market. The company receives ten percent of its revenues from Asia, excluding Japan.

Toward the end of the quarter, Sybase moved its business transactions in Thailand, Malaysia, Korea, and the Philippines to a cash-only basis.

"People had problems paying us in U.S. currency," Kertzman said, explaining that the exchange rate in these four countries created a situation in which customers were finding that they had to pay much more for Sybase products and as a result wanted to extend their payment periods in the hope that currency rates eventually would become more favorable.

Rather than pull out of those markets, Sybase opted to require cash payment, Kertzman said.

"We try to give them tough love," he said.

Sybase said that it expects to report an operating profit on a pretax basis for the period. It expects to report that fourth-quarter revenues were within a range of $245 million to $250 million. That would mark the fourth consecutive quarter in which year-to-year revenues would drop. Sybase reported revenues of $267.8 million in the comparable quarter a year ago.

Six months ago, Sybase began working its way into other areas. "We're focusing on data warehousing, mobile computing, and e-commerce, so we're no longer just a database company," Shank Rockman said.

Analyst Brian Eisenbarth, with Collins and Company, said Sybase is suffering along with the rest of the database industry and that its recent move to diversify its markets is a good move.

The company expects to report its fourth-quarter results on January 21 after the markets close.