Oracle profit warning spells doom:
http://www.zdnet.co.uk/news/2001/8/ns-21312.html
---excerpt---
Lowered spending for software has hit Oracle
where it hurts
Oracle, the world's second largest software
company, on Thursday joined the list of
technology bellwethers warning that a slowing
economy would cause profits to come in lower
than expected.
Oracle had been one of the few industry titans to
appear unscathed by corporate America's
reluctance to commit to big-ticket technology
purchases.
With Thursday's announcement after the close of
trading, Oracle joined the growing list of high-tech
companies, including Cisco Systems, Microsoft
and Sun Microsystems -- that have issued profit
warnings or indicated that deteriorating economic
conditions likely will make for a difficult business
climate during the first half of the calendar year.
"We're seeing a very substantial slowdown in the
US economy that is making people cautions in all
of their spending, including spending for
software," Oracle chairman and chief executive
Larry Ellison said.
Oracle said its formerly bullish forecasts began to
crumble when senior executives in the United
States were reluctant to give final approvals as
Oracle pushed to close sales for its fiscal third
quarter, which ended on Wednesday.
"We didn't see a slowdown and that was
consistent up until about last Friday," Oracle chief
financial officer Jeff Henley said.
"After that, every day it got worse. Literally the
last day of the quarter we had a number of
transactions that didn't happen," he said.
Oracle shares, which had rallied $2-3/8 to close
at $21-3/8, fell to a new year-low of $16.94 in
after-hours trading on the Island system. The stock
is well off its year-high of $46-7/16.
Based on the slowing sales, Oracle now expects
to report earnings per share at 10 cents, up 25
percent from 8 cents a year ago, excluding
investment gains. The company had been expected
to earn 12 cents a share, according to First
Call/Thomson Financial.
Ellison said Oracle's operating income would be
about $900m, compared with Wall Street's
forecast of $1bn.
Oracle executives also said the company did not
yet see evidence that sales were slowing in Japan,
Asia and Europe.
"Through the third quarter, at least, there didn't
appear to be any leakage abroad, but that doesn't
mean it couldn't happen," Henley said.
"It's just going to bring down the whole software
sector. Obviously, no one's immune. I think the
whole group is vulnerable. This is the spill over
of technology," Credit Suisse First Boston analyst
Brent Thill said. "Software was the last standing
soldier."
The software vendor said total revenue grew
around 9 percent for the quarter and software
license sales revenue rose by 6 percent. Of the
company's two software product lines, Oracle
said its applications business of enterprise and
front office software grew 50 percent while its
database business was flat to slightly negative.
Oracle is slated to give detailed fourth-quarter
financial guidance when it reports third-quarter
earnings on 15 March.
In the months leading up to the warning, Oracle
said applications revenue would increase by 75
percent or more in the third quarter.
Analysts had been lowering forecasts for Oracle's
database revenue -- which accounted for more
than one-third of the company's second-quarter
revenues -- citing a slowing economy and dot-com
failures. Nevertheless, many thought it would
grow by at least 10 percent.
"I was expecting things to not be great. But I was
not expecting it to be this bad. I still thought the
database business would exhibit some growth,"
Epoch Partners senior analyst Mark Verbeck, said.
While the warning marks the second time in a
decade that Oracle's earnings are expected to miss
forecasts, Ellison said the company's
year-over-year profit and margins show
improvement despite the tough economic
atmosphere.
Oracle's operating margin improved to 33 percent,
an increase from 31 percent a year ago, said
Ellison, who added that the company also will
continue to manage expenses by allowing its head
count to fall through natural attrition.
"As long as the economy doesn't get worse, we
think we're going to be just fine. We think we're
better equipped to deal with the slowdown than
any other company on earth," Ellison said.
Analyst Thill, however, sees more disappointment
to come.
He said the software industry has been in a slump
for the past six months but stock prices haven't
bottomed out yet.
Thill said he would not be surprised if shares of
some software companies slide another 15 percent
to 25 percent.
"I don't know what's going to fix this," Verbeck
said.
"We're in this vicious circle where there's
unprecedented interest by consumers in the stock
market. Even though the numbers in the economy
aren't bad, the sentiment is terrible. It becomes
self-fulfilling. It's not good," he said.
---end---
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