Analyst sees weaker quarter for Oracle

According to J.P. Morgan H&Q analyst Jim Pickrel, Oracle is having a tough quarter, and things don't look good for the software giant's upcoming earnings or its stock.

Oracle shares were down 70 cents to $16.60, or 4 percent, in afternoon trading. On its third-quarter conference call, Oracle told analysts to cut their projections for the fourth quarter.

Oracle continues to lead the database management software market, but competitors have gained ground in the past year, according to a study released earlier this week. Microsoft, for the first time, surpassed Oracle in the market for Windows NT and Windows 2000 operating systems, according to Gartner Group. IBM, which last month purchased the database unit of Informix Software for $1 billion, is closing in on Oracle's lead in the Unix market, Gartner reports.

Many Wall Street analysts have predicted that the company's fourth quarter will be a disappointment. In April, Lehman Brothers also predicted a weak quarter, based on weaker than expected outlook from Sun Microsystems.

Pickrel lowered his estimates and price target for the company for a second time Friday. "Our last set of downward revisions looks too optimistic at this point," Pickrel wrote.

"Our field checks are not turning up much good news on the Oracle front," the analyst added. "The tough selling environment that hit at the end of the February quarter has continued through the close of the company's crucial May fiscal fourth quarter, and the ripple effects are likely to continue for at least two more quarters."

Several areas that were expected to boost growth--such as online exchanges and customer relationship management--haven't had much activity; revenue levels for the fourth quarter are therefore likely to be lower. Pickrel lowered his fourth-quarter estimates to $3.28 billion in revenue, down from $3.6 billion. The analyst lowered earnings-per-share estimates to 13 cents per share, down from 15 cents per share.

First Call expects Oracle to report a fourth-quarter profit of 14 cents a share.

Pickrel also dropped his estimates for 2002 to $12.1 billion in revenue, down from $12.7 billion. The analyst's estimates for earnings per share lowered to 46 cents a share, down from 51 cents.

Not only do domestic orders look bad, "indications emerge that Europe is slowing," Pickrel wrote. The eroding euro currency will also have a negative impact on reported revenue levels from the region, he added.

The confluence of all these factors could give Oracle shares enough impetus to fall to $13 to $14, Pickrel said, lowering his 12-month target price from $23 to $21 per share.

But Pickrel was still upbeat on the company's long-term prospects.

"Overall, size still matters. In summary, we believe that the Oracle juggernaut has hit several rough spots, but if management stays focused, the franchise can emerge intact," said the analyst, who maintained his "long-term buy" rating on the stock.