June 3, 2002 8:55 AM PDT
Analysts antsy about Oracle
The database software maker has been caught in a firestorm of late, given contract controversy with the state of California, stiff competition from IBM and Microsoft, and the need to close deals at the end of its fiscal fourth quarter ending May 31.
Oracle had to resort to heavy discounting in the final weeks of the quarter, and analysts are betting that the company will take a revenue hit. While concerns about Oracle's quarter have been persistent for the last month, the Wall Street bandwagon of worry is filling up.
In a research note Monday, Lehman Brothers analyst Neil Herman said he expected layoffs at Oracle and rival SAP, which recently restructured its management ranks. Pointing to weak spending for software, Herman said it's likely that software makers aren't going to see any improvement through the September quarter.
Citing "multiple sources," Herman said that "Oracle is likely to undertake significant employee reductions within the next several weeks." He wouldn't get more specific about actual numbers of employees targeted by a potential layoff.
An Oracle representative said the company doesn't comment on rumors. The representative did say that 200 jobs were cut Friday from the company's development group, which has 10,000 employees. SAP didn't immediately return phone calls.
Other analysts have also voiced concerns about Oracle's quarter.
Wachovia Securities analyst Jason Maynard said Oracle's fourth quarter ended on an "extremely sluggish note." Maynard cut his revenue estimate for Oracle to $2.45 billion from $2.72 billion. His earnings estimate for the fourth quarter was cut to 12 cents a share from 13 cents a share.
Consensus estimates for Oracle have been falling in recent days. Oracle, which will report its fourth-quarter results June 18, is expected to report a profit of 12 cents a share on revenue of $2.6 billion, according to First Call.
Maynard said Oracle's applications software and database businesses remain weak. "The applications market seems to be extremely tough, as customers are reluctant to bite off large multimillion dollar projects."
On the database side, Oracle had to cut prices amid stiff competition and "watchful customer buying," which was at least partly attributed to the California scandal, he said.
California awarded a $95 million software contract to Oracle last year, but a state audit found the deal would cost up to $41 million more than was needed. The ongoing flap with California made other state agencies wary of Oracle at a pivotal time.
Mark Murphy, an analyst at First Albany, said Oracle's fourth quarter is likely to be weak and the outlook won't be a lot better, adding that persistent worries about layoffs, the California scandal, and slow technology spending will continue to cloud the company's prospects.
Nevertheless, Murphy put the chances of an Oracle profit warning at about 20 percent. "Fourth-quarter results are not likely to be pretty, but not likely to be as weak as the most Draconian estimates," he said.