Oracle Q3 profit narrows on slow software sales

Database giant Oracle saw its third-quarter profit fall by a penny from a year earlier, to US$0.09 per share, as some of its key customers continued to rein in their IT spending, the company said Thursday.

Net income for the three months ended Feb. 28 was $508 million on revenue of $2.2 billion, down from net income of $583 million and revenue of $2.7 billion in the third quarter of fiscal 2001, Oracle said in a statement.

While the economy as a whole has started to recover, technology spending is still lagging, Jeff Henley, Oracle's chief financial officer, said in a conference call after the results were released. Industries where Oracle has traditionally done well, including telecommunication, financial services and high-tech manufacturing, continued to suffer, reducing sales markedly from a year earlier, he said.

"As far as we can tell, the spending for enterprise hardware and software remains very soft and does not seem to be improving," he said.

Oracle closed far fewer big deals -- those worth half a million dollars or more -- than in previous quarters. Customers are buying select products but have been unwilling to embark on large-scale software installations, Henley said. "Customers aren't doing big deals. They aren't buying ahead because they don't know their business is going to grow," he said.

In addition, more companies have been opting for the standard edition of Oracle's database, which carries a lower price tag than the enterprise edition, dragging down the company's average selling prices, he said. The company is optimistic that those customers will upgrade to the enterprise edition when the economy improves.

Henley lowered his outlook for the current, fourth quarter, saying earnings per share would probably fall a penny or two short of the $0.15 reported in 2001. Late last year, Oracle had said fourth-quarter 2002 earnings would be two to three cents higher than in 2001. Fourth-quarter software license sales are likely to be down as much as 25 percent to 30 percent from 2001 levels, Henley said.

"It's very difficult to understand at this point when the recovery comes and at what rate the recovery will be at," he said, calling his fourth-quarter estimate a conservative one.

In the quarter just ended, revenue from new software licenses suffered the most, declining 30 percent year-on-year to $770 million. Software license renewals grew 5 percent to $590 million. Overall services revenue dropped 7 percent year over year, to $1.4 billion, the company said.

By geography, revenue in the Americas declined by about 20 percent from a year earlier, to $1.2 billion. In Europe, the Middle East and Africa revenue, slipped 8 percent to $717.0 million. Revenue from the Asia-Pacific region, including Japan, plummeted 22 percent to $273.8 million, Oracle said.

The Redwood Shores, California-based company earlier this month warned of a likely earnings shortfall in the quarter. Blaming weak software sales in Asia, it predicted earnings of $0.09 per share for the quarter, down from its previous estimate of $0.10 and a penny short of what analysts had been expecting.

Analysts had since revised their estimates and had been expecting a profit of $0.09 per share on revenue of $2.4 billion, according to a consensus estimate gathered by Thomson Financial/First Call.

Despite the poor results, Oracle executives reiterated their belief that the company is not losing share in the database market to rivals such as IBM Corp. and Microsoft Corp. Year-over-year comparisons are particularly tough for Oracle because it benefited more than most from the telecommunication sector, Internet start-ups and other industries that have suffered most heavily in the past year, Henley said.

Separately Wednesday, Oracle said it would donate $10 million over four years to the United Negro College Fund and its 39 member colleges and institutions. The grant includes a cash donation as well as funding for scholarships, internships, curriculum, training and technology resources.

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