Oracle expected to post gains despite slump

Oracle Corp. is expected to post small gains in profit and sales when it reports fiscal third-quarter results next week, despite concern about the company's ability to drum up business amid a generally bleak winter for the high-tech industry.

Analysts on average estimate Oracle will post earnings excluding special items of 32 cents a share for the three-month period ended in February, on $5.47 billion in revenue, according to FactSet Research. That compares to earnings excluding special items of 30 cents a share and $5.35 billion in revenue in the same period year earlier.

In December, Oracle itself forecast earnings for the quarter between 31 and 33 cents a share and revenue growth between 1% and 4%, while attributing the results to a strengthening U.S. dollar likely to impact foreign sales.

Wall Street is bracing for the worst. Shares of Oracle have slumped more than 13% in the last month. The stock closed trading Thursday up nearly 2% at $15.63.

In recent weeks, a number of analysts have expressed concern that Oracle's sales of new software licenses - a key metric that reflects the company's ability to draw in new customers - have been undercut by the downturn.

Earlier this month, one analyst went so far as to predict the worst quarter for Oracle since the early 1990s. "The tone of the commentary from our industry sources regarding new license revenue is the worst we have ever heard," wrote Patrick Walravens of JMP Securities in a report, in which he scaled back his earnings estimates for the company.

Still, a number of analysts also point to the company's dependable stream of maintenance revenue from existing customers, while noting that it may well emerge from the downturn in a stronger position.

"The recent sell-off" in Oracle shares is "overdone," Barclays Capital analyst Israel Hernandez wrote in a note to clients earlier this week. While Hernandez said his research points to a "weak" third quarter for the company, particularly for its sales of applications software, it wasn't bad enough "to break [the] stock."

"Oracle remains well-positioned to consolidate share through [the] downturn," Hernandez wrote, though he lowered his third-quarter estimate for earnings excluding special items to 32 cents a share from 33, and revenue to $5.3 billion from $5.5 billion.
Oracle, which originated as a purveyor of database software, has expanded in recent years through a series of acquisitions to also become a powerhouse in business applications software.
That's drawn it into more direct competition with German rival SAP AG.

In January, SAP reported a 13% gain in fourth-quarter profit for the period ended in December, though it also announced it would be cutting over 3,000 jobs this year in an effort to lower costs. See related story on SAP's quarterly earnings.
Oracle has continued to buy other companies during the economic downturn. Last month, it snapped up closely-held mValent Inc. in an effort to bolster its applications business.

Author: John Letzing @ www.marketwatch.com