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THE DAY AHEAD: Oracle wants a little CEO confidence

COMMENTARY--Why bother worrying about consumer confidence? After listening to Oracle chief Larry Ellison it may be time for a CEO confidence index too.

Oh sure, the stated reason for Oracle's third-quarter profit warning is the economic slowdown, but on a conference call with analysts Ellison kept talking about how CEOs and CFOs pulled the plug on deals at the last minute. It's not that surprising. This e-business transformation stuff isn't cheap. Oracle wants to provide customers with a suite that will cover marketing, sales, service, procurement, supply-chain, manufacturing, accounting and human resources. It also sells databases.

But just like consumers, head honchos are pulling the plug on spending. Top execs had big plans for Oracle databases and e-business applications, and then BLAM, they shut the door. And Oracle (Nasdaq: ORCL)--one of the last tech giants to warn--had its third quarter in the way.

Oracle said it will report third-quarter earnings of 10 cents a share, two pennies short of Wall Street estimates. Because of weak database sales, revenue growth will be 9 percent, about $200 million shy of First Call consensus estimates calling for sales of $2.87 billion. Applications sales will be up 50 percent, but that's well below previous predictions of 75 percent to 100 percent growth.

With Ellison, it's not exactly what he says, it's how he says it. "At the last minute, CEOs and CFOs said 'we don't have the money right now,' " said Ellison on the conference call. "There's tremendous concern at that senior-executive level about the economy. These were not deals that were lost competitively. These are not deals that they aren't going to buy. These are deferred deals from economic uncertainty."

That's a long way from Ellison's banter three months ago. On the company's second-quarter conference call, Ellison couldn't stop talking about Oracle's "astounding" pipeline of business. Even last week at Oracle's applications conference in New Orleans, Ellison was bullish. It makes you wonder if management is out of touch.

"Oracle's upbeat nature at the application users conference followed by a pre-announcement the following week is likely to shake investors confidence," said Lehman Brothers analyst Neil Herman. "Every software stock is now likely to be a show me story over the near-term with investors putting very little faith in management comments."

Just to attempt to placate analysts who asked the same question over and over, Oracle CFO Jeff Henley simply said there's no visibility for anyone about where the economy's going. Of course, Henley hopes he'll have a little more economic clarity March 15 when the company reports earnings, but don't bet on it. It's hard to believe that execs will suddenly find their fiscal confidence in two weeks.

Ellison sounded almost a bit surprised about his customers' "umbrella of uncertainty." How dare customers not use Oracle's e-business suite to save money?

But that's the environment the tech sector finds itself in. We're headed down a runway and it's pretty foggy out there. Now e-business software companies, which were supposed to be a little recession resistant, are taking the heat. Who's next?

A few Oracle take aways
A few things that make you wonder...

• Oracle shares plunged more than 15 percent in after-hours trading. It's not too surprising given that Oracle gained 12 percent on Thursday, but investors couldn't have been too shocked about the warning. Most of Oracle's database customers are dot-coms that don't exist anymore.

• Speaking of databases, Oracle's profit warning shows that the company is still a bit too reliant on database sales, which have been slowing over recent quarters. Oracle has been talking the e-business-applications game and its effort to be the business-to-business Microsoft, but those database hiccups can still hurt. Database revenue will be flat to slightly lower in the third quarter, well below projections for growth of about 12 percent from analysts, who recently adjusted their numbers. Applications sales are growing at a 50 percent clip in the third quarter, but that's not fast enough to compensate.

• "Our internal sales forecast looked good up until the last few days of the quarter," Ellison said. Translation: We were running our tails off to make the quarter, but fell short. You can almost hear Ellison cursing Federal Reserve Chairman Alan Greenspan.

• Get used to slower growth. Henley didn't have any details about future growth, but he indicated sales are going to be slow. It all comes back to confidence, and few execs have it.

• What does Oracle's warning mean for other allegedly bulletproof software companies--Siebel Systems (Nasdaq: SEBL) and BEA Systems (Nasdaq: BEAS) among others? The consensus view was that software companies that Webify businesses to make customers more efficient would be resistant from a recession. That's not so clear anymore.

TDAIN
• Oracle joins warning parade
•  Street cuts estimates for software firms, sees trouble ahead
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