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Oracle net profit down in key quarter

The software company's fourth-quarter revenue and profit are lower than they were in the same period a year ago, but net profits meet forecasts.

Oracle reported a decline in fourth-quarter profit and revenue Tuesday, but the company's lower net profit met analyst expectations.

The world's No. 2 software company posted a net income of $655.9 million, or 12 cents per share, for the quarter ended May 31. That's down from $854.9 million, or 15 cents per share, in the same period last year.

Excluding a charge related to Oracle's investment in Liberate Technologies, the company's income was $760 million, or 14 cents per share.

Oracle pulled in total revenue of $2.77 billion, down from $3.29 billion in the same quarter last year. This marks the company's fifth consecutive quarter of year-on-year declining revenue for the database giant.

Larry Ellison, Oracle chief executive, confirmed last week that the company's profit would meet analyst estimates of 12 cents a share, so analysts were eager to analyze the company's revenue, particularly new license revenue. New license revenue, generated from new sales of software, supports other lines of business such as consulting, maintenance and upgrades.

Oracle reported that new license revenue in the fourth quarter fell nearly 30 percent from the same period last year, to $1.15 billion. New license revenue generated from Oracle's database software fell 29 percent to $904.3 million, while new license revenue generated from applications, including the 11i E-business Suite, fell 27 percent to $245.7 million.

Oracle's new license revenue exceeded industry expectations, said Jolson, adding that those expectations didn't present much of a hurdle to clear.

"The thing we have to keep in mind is that people's expectation came down quite a bit, and new license revenues are still off roughly 30 percent," said Patrick Walravens, a stock analyst at merchant banker Jolson Merchant Partners Group. "But they definitely did better than people expected."

Outlook
Oracle expects declining profits and license revenue to continue in the first quarter, Oracle CFO Jeff Henley said.

Henley said Oracle's software license sales in the current quarter would be down between 15 percent and 25 percent from a year ago. He said that would lead to earnings of 7 cents a share in its fiscal first quarter 2003, ending in August, 2 cents below its earnings in the year-ago quarter.

If software sales came in at the high end of its negative growth outlook, the company would post earnings of 6 cents a share, or 3 cents lower than a year ago, said Henley.

The company doesn't expect revenue to expand until the second half of the company's fiscal year, which begins next year, he said. Henley declined to give a more specific forecast for fiscal year 2003, but he said it is reasonable to expect positive revenue growth for the year.

"Visibility going forward remains limited," Henley said. "Our assumption is that the U.S. economy will continue to improve but that technology spending will lag behind."

Oracle has no plans for any significant layoffs, assuming technology spending will eventually pick up, Henley said, repeating Ellison's statement on the matter earlier.

Oracle competitors, including Siebel Systems and Manugistics, have recently said that the market for business software remains tough. Analyst were looking for signs to the contrary from Oracle's quarterly report, and particularly from it's 2003 forecast. They apparently didn't find it.

"I wouldn't view this as being a bullish signal for the entire software sector," said Walravens, who had anticipated earnings of 9 cents a share for the first quarter before Oracle gave its outlook. "Essentially what Oracle told us to expect was certainly one and possibly two more quarters of decreasing year-over-year revenues."

The summer quarter is also a historically slower quarter for many business software companies, and will likely be compounded by the lull in corporate technology spending, said Walravens, adding: "It's going to be a long, hot summer."

Piece of the pie
A report released recently by Gartner Group suggests that IBM has surpassed Oracle in the database market. Ellison used the fourth-quarter conference call to dispute that finding.

The Gartner report is just one of 20 database market share reports and the only one that indicates IBM has surpassed Oracle, he said. Gartner's report was based on a "peculiar methodology" that counted other lines of business at IBM, such as rental fees, as database sales, he said.

"They have to go to pretty tortured lengths to come up with IBM passing us in the database market," Ellison said.

"All the evidence we can find is that our market share is increasing," the CEO added.

Oracle executives downplayed the Gartner report at the time it was released, but many analysts are in agreement that Oracle's premium prices are helping competitors grab a growing portion of the database market.

Over the past few years, Oracle has faced fierce competition from IBM and Microsoft in the database software market, which has remained fairly flat, growing only 1.4 percent to $8.8 billion in 2001.

But Oracle's fourth-quarter numbers say nothing about who is gaining or losing market share because IBM and others have yet to report their quarter, analyst Walravens said.