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THE DAY AHEAD: Amid slowdown, Oracle trumps Microsoft

COMMENTARY -- It was a tale of two conference calls Thursday evening with Oracle preaching that it was the best of times and Microsoft sounding just like any old tech company.

Remember the contrast -- it's becoming pretty stark.

To no one's surprise, Microsoft (Nasdaq: MSFT) issued a profit warning for its fiscal second quarter. Sales will be 5 percent to 6 percent lower than expected to the $6.4 billion to $6.5 billion range. The company said earnings per share would fall in the range of 46 cents to 47 cents, a few pennies shy of Wall Street estimates.

The software giant, which rarely issues profit warnings, also lowered its 2001 estimates. The economy is slowing and Microsoft is taking a hit on sluggish consumer PC demand and corporate spending. In addition, Microsoft is seeing slowing MSN growth due to the dot-com meltdown.

On a conference call with analysts, Microsoft sounded like any old tech company (AOTC). For shareholders, it's shocking that Microsoft and Intel are in the AOTC club.

It didn't take long for analysts to give Microsoft CFO John Connors a question he really couldn't answer.

Analyst: Isn't the fundamental issue that desktop PCs aren't as critical as they used to be?

Connors: At the end of the day, the PC is the most important asset for the knowledge worker. Over the next six to 18 months, we need to ignite enthusiasm for the PC.

How Microsoft will get folks jazzed about commodity PCs is unclear. Microsoft is in the wrong place at the wrong time, with arguably the wrong approach. Microsoft said it has a strong product pipeline, but if the PC market is truly saturated it doesn't look good.

Connors went on to talk about a slowing economy and "resetting expectations," a euphemism for lowering estimates. When asked how Microsoft could be sure things couldn't get worse, Connors was also outgunned. One question worth asking: Why wasn't CEO Steve Ballmer on the conference call to bail Connors out?

Maybe Ballmer didn't have the answer either.

Oracle (Nasdaq: ORCL) CEO Larry Ellison had plenty of answers -- and he bothered to show up on the conference call. Of course, Oracle is a bit insulated from the slowdown -- it sells pricey software to big customers that can't afford not to spend on e-business.

Ellison -- who has never been known for understatement -- said his company is almost slowdown-proof. "In a down economy where companies are concerned about expenses we are a great alternative to the best-of-breed approach because we minimize costs," said Ellison.

CFO Jeff Henley said the company isn't seeing a slowdown in its business. "At this point, we see no impact on our business," said Henley. "It's important to point out that not all technology companies are the same," he said in a thinly veiled reference to Microsoft and its PC club.

Barring a recession or a "hard landing" in the economy, Oracle said business will remain strong. The story these days isn't PCs -- it's the Internet and e-business. Oracle officials said the company's pipeline was "astounding" and growth looked good for the fiscal third quarter.

That outlook is saying a lot since Oracle posted strong results in its second quarter. Oracle topped estimates with earnings of 11 cents a share on sales of $2.7 billion. Applications sales, which are closely watched by analysts, were up 62 percent. The company has even weathered the dot-com fallout by selling to established businesses.

Simply put, Oracle is in the right place at the right time with strong products.

Oracle's pitch appears to be holding up. In all geographies -- including a sluggish Europe -- Oracle came out ahead in its quarter.

Ellison's touting of Oracle's e-business products sounds almost Microsoft-ish. Oracle wants to provide customers with a suite that will cover marketing, sales, service, procurement, supply chain, manufacturing, accounting and human resources. Ellison mocked IBM ads that talk about how complex it is to run an e-business suite. Oracle said it can have customers up and running in weeks.

"I don't know how good is good, but it could be real good," said Ellison, referring to Oracle's applications growth. He could have been talking about the whole company. TDAIN


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