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Oracle hits Wall Street targets

The company meets lowered estimates despite a drop in sales and net income in the second quarter.

Oracle posted a second-quarter profit that met revised analyst estimates Thursday, but revenue fell 11 percent and net income dropped by 12 percent.

Excluding one-time costs, Oracle announced a second-quarter profit of $549 million, or 10 cents a share, compared with last year's second-quarter profit of $623 million, or 11 cents a share. Wall Street analysts had expected revised earnings of 10 cents a share.

For its second quarter, which ended Nov. 30, revenue fell 11 percent, from $2.66 billion last year to $2.36 billion this year.

Oracle Chief Executive Larry Ellison last month warned that Oracle would miss analyst estimates of 11 cents per share. At the time, he said he expected profits of 9 cents to 10 cents per share.

"Sept. 11 had a significant impact. Since it occurred during the first month of Q2, the impact ran through the entire quarter," Jeff Henley, Oracle's chief financial officer, said during a conference call with analysts. "Our current assumption is that we hit the bottom in Q2. Things have begun to normalize, and things will begin to pick up slowly."

New software licenses from database, application server software, and business software applications fell 27 percent, while software license renewals jumped 8 percent, and product support services increased 12 percent. Services revenue was flat.

New second-quarter sales of database software fell 21 percent to $640 million year over year, while business application software revenue plummeted 42 percent year over year to $163.1 million, Oracle executives said.

During Thursday's conference call, Henley predicted that sales for the third quarter would improve, but overall revenue would still decline year over year. He said he expects fourth-quarter revenue to remain flat year over year. In the new fiscal year, "things progressively get better," he said.

While databases are Oracle's bread and butter, the company also competes against SAP, Siebel Systems and PeopleSoft by selling an e-business suite of software that includes accounting, human resources, and manufacturing applications, as well as customer relationship management software that automates a company's sales and marketing tasks and other customer needs.

Oracle's application server software grew 52 percent in the quarter, Oracle executives said. Oracle competes against IBM, BEA Systems, Sun Microsystems and others in the lucrative market for application servers--software that runs e-business and other Web site transactions.

Oracle also reported an operating margin of 35 percent. Margins are the difference between a company's revenue and its costs.

With the database market maturing, Oracle executives said the company's three other products--the e-business software suite;, which offers software that businesses can rent over the Web; and application servers--represent the fastest-growing portions of the business.

The application server business can be "half as big as our database business, maybe three-quarters," Ellison said in the conference call. "We think it's a hugely profitable business. We believe we will gain market share very rapidly." Wall Street analysts say judging Oracle's current second-quarter sales with last year's is a tough comparison because the company's business was still booming last year. At the time, the Internet downturn was just beginning, and the spending slowdown had not hit Internet infrastructure software companies.

"This was one of their most challenging quarters in a long time," said analyst Bob Austrian, of Banc of America Securities. "Last year was uniquely strong, and this year is uniquely weak."

Because Oracle was in the throes of the economic slowdown this past summer, the company will have the potential to show big revenue growth by the middle of calendar year 2002 if the economy improves by then, Austrian said.