THE DAY AHEAD: Oracle backs up the boasts ... for now

Larry Dignan
3 min read

Oracle Corp. (Nasdaq: ORCL) backed up its talk with a whopper of a fourth quarter. Now investors just have to decide if the company can continue to impress.

The world's second-largest software vendor posted net income of $527 million, or 36 cents a share. First Call's survey of 30 analysts predicted earnings of 32 cents a share.

Oracle: Is consistency king?

Fourth quarter sales increased 22 percent, to $2.9 billion from $2.4 billion in the year-earlier period. In addition, Oracle topped analysts' sales expectations, which were about $2.8 billion.

More importantly, the company's applications revenue, also known as Oracle's growth engine, rose a stronger-than-expected 28 percent. Oracle's traditional database business picked up 25 percent. Services revenue grew 22 percent year-over-year.

Can't beat those numbers. Oracle is the complete opposite from the third quarter. In the third quarter, the company talked a good game, but didn't deliver. In the fourth quarter, Oracle talked itself up, then convinced analysts to minimize expectations and finally delivered. And that's the problem with Oracle -- it's hit and miss when it comes to meeting expectations.

With Oracle's recent track record and Year 2000 looming, the company's first and second quarters remain wild cards.

Officials have maintained that there has been no Year 2000 problem for Oracle. Analysts, however, are expecting a few blips. CEO Larry Ellison contends Oracle is simply beating up the competition. "Y2K is just around the corner. And every other ERP vendor -- SAP, Peoplesoft, BAAN and JD Edwards -- has reported declines of software sales in their most recent quarter," said Ellison.

When analysts asked how the company can deliver go from shabby to great in one quarter, Ellison admitted visibility wasn't great because of Year 2000 problems. "It's a difficult time period," said Ellison. "We're not completely sure what's going to happen."

Although Oracle won't admit it, the company could be hurt by the year 2000 as IT departments stop spending on anything that could be risky. John Puricelli, an analyst with A.G. Edwards Inc., said Oracle's databases and enterprise resource management software could be dubbed risky. "Companies will not buy anything that introduces risk to their networks," said Puricelli. "People get fired over that."

Puricelli said corporate upgrades and projects will come, but maybe not in Oracle's first and second quarters. Put simply, you won't hear any Year 2000 concerns from Oracle, but don't discount the threat.

Nevertheless, Puricelli said Oracle's quarter-to-quarter performance isn't that important. Over a year or two, Oracle looks like it's in great shape.

Of course, Wall Street, which has the attention span of a 2-year-old, can't look beyond today. With that in mind, here are the items that will move Oracle shares in the short-term:

  • Oracle is closing business. The third quarter problem was simple -- Oracle couldn't seal deals. "The third quarter was an anomaly," said Ray Lane, Oracle's operating chief. Oracle officials said they had no idea what went wrong in the third quarter.

  • The first quarter is off to a good start. "We're always concerned about the first quarter, but we're off to a good start," said Jeff Henley, Oracle's financial chief.

  • The pipeline is strong. Officials said Oracle is selling a lot of products that are not related to Year 2000 woes. "There's a sense of panic about e-commerce," said Ellison. "And there's only a few places where companies can turn to."

  • Japan is improving. Officials said Japan sales recovered. If that continues, Oracle could be off to the races.

    However, Oracle is usually optimistic. Given Oracle's penchant for missing every other quarter or so, the real proof will be in the first and second quarters.