State Deal Adds to Oracle’s List of Woes

The political flap over software giant Oracle Corp.’s $95-million contract with the California government represents another headache for a company already smarting from a sales slump, stiffer competition and a three-year low in its stock price.

“It’s not a catastrophic event, but when you are already operating in a difficult environment the last thing you need is more difficulty,” said industry analyst Mark Verbeck of ThinkEquity Partners.

Just how much the outcry over the deal hurts the world’s second-largest software company probably won’t be known until state Atty. Gen. Bill Lockyer and the Legislature complete an investigation into the circumstances leading up to the controversial contract.

Lockyer and lawmakers are looking into whether a $25,000 political contribution made by Oracle to Gov. Gray Davis’ campaign influenced his administration’s decision to buy the company’s database software at a time the company was scrambling to drum up sales. A state auditor criticized the deal as a waste of state money.

Oracle has denied any wrongdoing and offered to cancel the deal if it and its business partners can reverse the financial steps already taken to carry out the six-year contract. Davis wants out of the contract.

Oracle easily can afford to refund the money. The $95-million contract represented less than 1% of the company’s $10.9 billion in revenue during its fiscal year ended in May 2001--the period when the state signed the deal.

Oracle probably is most concerned with how the furor will affect its past and future sales to government agencies, a key market for the company, said Sam Singer, a San Francisco public relations representative specializing in corporate crisis management.

The fallout from the California contract might make government decision makers more cautious about dealing with Oracle in the future and lead the company’s own sales representatives to behave less aggressively, Verbeck said.

A more circumspect approach could open the door for Oracle’s biggest rivals in the database market, IBM Corp. and Microsoft Corp., to lure away customers.

The company’s shares fell for the fifth consecutive session on Nasdaq on Monday, shedding 21 cents, to close at $8.22.