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Oracle fires back over Calif. contract

The company disputes claims that it sold the state of California more software than it needed. It also says backing out now could create trouble for the state's agencies.

Oracle came out swinging Tuesday, disputing claims that it sold the state of California more software than it needed--and warning that if that state cancels a $95 million contract, it could create problems for agencies already using the software.

"Nearly 50 California state and local agencies have already used the new contract," Oracle Chief Financial Officer Jeff Henley said in a statement. The contract gave agencies a volume discount on the price of the software, he said. "If the state elects to withdraw from this contract, these savings will be lost."

The $95 million deal is all but dead. Oracle and Logicon, the Oracle reseller that negotiated the contract, offered to rescind the deal, and the governor's office on Monday said it had accepted the offer. Executives from Oracle and state Finance Director Tim Gage were meeting Tuesday to work out financial details since some money has already changed hands.

But the political fallout has continued, with critics saying that the contract, signed last May, was rushed through with little oversight. In the last several weeks, three state officials have resigned or been suspended, and state legislators have started hearings into the matter.

On Monday, two state officials told a legislative panel that they sought to warn superiors about the contract with the software giant but were overruled.

A spokesman for California Gov. Gray Davis said Tuesday that he had no comment on the Oracle statement. Kevin Terpstra, a spokesman for the Department of Information Technology, said he is unaware of any state agencies that have migrated to the contract or have bought new licenses under the contract. The Office of Information Technology was created in 1995 to coordinate major tech purchases for the state.

Oracle also challenged reports that state employees are not yet using the new software. A report from a state auditor released last month states that as of March 20, "no state department had acquired new licenses under the Enterprise License Agreement."

But Henley said almost 50 agencies are using software under the new contract. Pressing home the point that Oracle software is already used extensively in the state, Tuesday's six-page statement detailed some of the existing Oracle contracts with about 100 state agencies and municipalities, ranging from the governor's office to the Department of Motor Vehicles.

Oracle spokesman Jim Finn declined to identify the 50 agencies using the software under the disputed contract. He said the agencies had either bought new licenses under the contract or migrated older agreements to the contract.

"That state auditor's report has numerous inaccuracies and flat-out factually incorrect statements," Finn said.

Henley also defended the terms of the contract. The state auditor's report found that the contract would cost taxpayers $41 million more than needed, but some state officials and Oracle maintained it would save the state $110 million to $163 million over 10 years.

"Oracle continues to believe that the contract delivers great value to the state and local governments in California," Henley said.

State hearings on the disputed Oracle contract are scheduled to resume Monday.

Also Tuesday, Oracle shares ended up slightly even though some analysts cut their forecasts for the company after a Gartner Dataquest report showed IBM surpassing Oracle as the leading seller of database-management software.

In addition to the Gartner report, another research firm is expected to detail Oracle's slide. IDC will show that Oracle has lost market share to rivals IBM and Microsoft when the research company releases a new study in the next few weeks, sources say.

Oracle, like many other large software makers, has been troubled by weak sales. In addition to slumping database-software revenue, the company has seen sales of business-application software slow.

In its most recent quarter, Oracle said that overall new license sales dropped 30 percent. Database software revenue--which constitutes nearly three-quarters of Oracle's overall business--slid by 23 percent, while sales of its business applications dropped 41 percent.

Last week, Goldman Sachs and Lehman Brothers analysts lowered estimates, citing concerns about Oracle's ability to match Wall Street estimates as it grapples with company-specific issues and corporations' lingering unwillingness to invest in technology.