Amid Wall St. Gloom, Oracle Beats Forecast
Software giant Oracle Corp. offered a ray of light in an otherwise gloomy Monday for tech firms when the leading maker of database products modestly beat Wall Street’s expectations and delivered a guardedly upbeat projection for the next quarter.
Oracle reported an operating profit of $1.3 billion on sales of $3.3 billion in its fiscal fourth quarter, which ended May 31, compared with an operating profit of $1.4 billion on sales of $3.4 billion in the same period a year earlier.
This report came on a day when other mainstay tech companies, Solectron Corp., Hewlett-Packard Co. and Cisco Systems Inc., were hit with skeptical reports about their near-term prospects.
Oracle’s quarterly net income, after extraordinary gains and charges, was $855 million, or 15 cents a share, compared with an average of 14 cents a share projected by First Call; analysts initially expected Oracle to earn 17 cents a share. In the same period a year ago, Oracle enjoyed a net profit of $4.9 billion--due largely to a windfall from sales of shares in Oracle Japan.
Oracle Chief Financial Officer Jeff Henley called the last quarter “the low point.” He added: “We are cautiously optimistic that things will swing upward” in the next quarter.
“They have a history of making the [profit] number when people don’t think they’re going to,” said Maceo Sloan, chief executive of NCM Capital Management, which holds Oracle shares in its $6-billion portfolio.
To entice reluctant customers to buy software, Oracle offered steep discounts just before the quarter ended, one analyst said. “They wanted to make their number so badly that one big customer got a 90% discount,” said analyst Mark Shainman of the Meta Group in Reston, Va. Discounts of 50% to 60% were more typical, he said.
Oracle is a leader in software that stores and manages vast databanks for Web sites and corporations. The company also sells a suite of add-on software applications--including human resources and financial management--that operate with its core database programs.
Sales of Oracle’s flagship database software fell slightly in the last quarter as businesses cut technology-related spending. Oracle trimmed costs and reduced its work force to compensate.
For the full fiscal year, Oracle reported operating profit of $3.8 billion on sales of $10.9 billion, compared with $3.1 billion in operating profit on $10.1 billion in sales the prior year.
The Redwood City, Calif.-based company’s shares fell 16 cents to close at $14.84 in regular Nasdaq trading Monday, then rebounded to $16.10 in after-hours trading after the earnings announcement.
Other tech news was less uplifting. Shares in Solectron, a leading contract manufacturer for electronic components, fell $1.21 to $16.78 in NYSE trading Monday after the company reported a net loss of $185.7 million, or 28 cents per share, compared with net income of $119.7 million, or 19 cents a share, a year earlier. The Milpitas, Calif., firm also projected disappointing operating profit of 5 cents to 9 cents a share in the next quarter, well below the projection of 16 cents a share from First Call.
Meanwhile, Hewlett-Packard’s outlook was reduced to “negative” from “stable” by Standard & Poor’s, as the computer maker copes with slack demand for its PCs and printers. S&P; left the company’s ratings intact, saying they could be dropped if results don’t improve in fiscal 2002.
John Jones, an analyst with Salomon Smith Barney, attributed part of the company’s malaise to an organizational overhaul. The moves should reduce HP’s divisions from close to 50 down to five--a long-overdue but costly transition, Jones said. Investors shrugged off the S&P; move; shares in Palo Alto-based HP fell 21 cents to close at $26.71 in NYSE trading Monday, a modest decline compared with other major PC makers.
Also on Monday, institutional investors voiced doubt about troubled network-equipment bellwether Cisco Systems.
Cisco might cut estimates for the quarter ending July 28, said Steve Mygrant, fund manager for the Fifth Third Bank’s Technology Fund, which holds more than 6 million Cisco shares. Boris Boehm, a money manager at Nordinvest, another Cisco investor, also said the company might miss its quarterly estimates.
Cisco lost $2.7 billion in the last quarter. Rivals Juniper Networks and Nortel Networks recently said they will miss estimates because of slowing demand; on Friday, Nortel reported a whopping $19.2-billion loss in the last quarter. Analysts said that although those market forces might drag Cisco down, the company’s long-term prospects remain strong.
Cisco declined to comment. The San Jose-based company’s stock fell 15 cents to close at $16.50 in Nasdaq trading Monday.
In another sign that the tech downturn may be far from over despite Oracle’s optimism, Salomon Smith Barney analyst Steven Wieting issued a report on Monday predicting that S&P; 500 earnings will stagnate in the next two years, with earnings from technology companies declining 45% in 2001.
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Times news services were used in compiling this report.
