Oracle hit by users' IT spending delays

by Craig Stedman

March 5, 2001 —

Oracle Corp. today became the latest in a long line of technology vendors to warn about lower-than-expected financial results, disclosing that software sales in the fiscal quarter that ended yesterday were affected by IT spending delays at "a substantial number" of its corporate users.

The company said it now expects total revenue to grow just 9% in the fiscal third quarter on a year-to-year basis, with software license sales increasing only 6%. Sales of the company's flagship databases are likely to be flat with last year's third quarter or even "slightly negative," said Oracle, while application sales should rise about 50% year-to-year.

Larry Ellison, Oracle's chairman and CEO, said in a statement that the company was taken by surprise by a last-minute slowdown in orders from users in the U.S.

"License growth was strong in the first two months of [the third quarter], and our internal sales forecast looked good up until the last few days of the quarter," Ellison said. "However, a substantial number of our customers decided to delay their IT spending based on the economic slowdown in the United States." Sales remained strong in Europe and Asia, he added.

The revenue shortfall is expected to leave Oracle with a third-quarter profit of 10 cents per share, which would be up more than 20% from the same period last year. But Jeffrey Henley, Oracle's chief financial officer, said reduced revenue expectations will likely push earnings growth in upcoming quarters down to "a lower rate than previously expected."

A more detailed business outlook is due to be released when Oracle reports the final third-quarter results on March 15. But with the "continued uncertainty in the [U.S.] economy, we can't predict when sales growth will improve," Henley said.

Oracle is hardly alone in facing diminishing financial results and an uncertain business outlook. For example, 3Com Corp. yesterday disclosed that revenue in its fiscal third quarter ending Friday will likely be "substantially lower" than expected, resulting in a pro-forma operating loss of $235 million to $245 million.

3Com's warning came just two days after the Santa Clara, Calif.-based vendor of networking products said it was laying off about 1,200 workers in the wake of larger-than-expected loss in the previous quarter. Executives at 3Com are blaming the latest sales shortfall on the slowing economy and a continuing reduction in purchases from users in the telecommunications industry.

Computerworld