It's nail-biting time as IT managers close out their books for the year and try to finish their budgets. We got an early indication of the temperament of IT buyers in Oracle's (ORCL--Nasdaq) second-quarter earnings announcement last week for fiscal 2003. Nothing gets technology investors excited like good earnings from a technology bellwether such as Oracle. So it's not too surprising that investors are more hopeful after Oracle announced earnings per share of 10 cents, higher than the analysts' consensus forecast of 8 cents.

I wish I were more optimistic, but I expect some lumps of coal still await technology investors. Market-leader Oracle tends to have more staying power than second-tier technology companies. Also, the company was very conservative in its earnings and revenue projections. Once again, managing expectations is critical in this market--positive short-term share-price behavior depends primarily on meeting or exceeding Wall Street analysts' expectations.

The consensus among Oracle analysts was that new license revenue would be about $700 million during the second quarter, with some estimates as low as $670 million and others as high as $740 million. License revenue came in at a healthy $765 million, down 6% year over year. Usually, license revenue reflects about 80% database licenses and 20% application licenses, but this quarter, database sales made up just over 85% of license revenue. Database sales were stronger than expected, with sales flat year over year, but up from the previous quarter. Meanwhile, new application licenses declined a substantial 34% year over year, slightly worse than expected.

Thank goodness for license updates and maintenance fees. With Oracle's large installed base, they keep the cash coming in.

New license-revenue projections for the fiscal third quarter fall between minus 5% and plus 5%, year over year, with total revenue remaining flat. The biggest problem remains share-price valuation. With fiscal year 2003 ending in May, most analysts expect Oracle earnings per share will be 39 cents, down from 41 cents last year. That forecast jumps up to a modest 44 cents in fiscal 2004, but individual analyst picks range from 39 cents to 51 cents. This isn't the kind of earnings growth one likes to see in what's supposed to be a fast-growing technology company.

But analysts have been wrong before--one only has to look at Salomon Smith Barney's prediction of a share price in 2000 of $100 per share to realize they don't necessarily make the best valuation calls. At the current price of $11.50, this year's price-earnings multiple is 26.7, even at the highest earnings-per-share forecast of 43 cents; the price earnings for 2004 is projected to be between 22 and 29 cents, depending upon the estimate. These multiples are still too high for a company that's likely to grow earnings per share 10% to 15% per year. Given business uncertainties, there's still too much share-price downside risk in the stock. A closer fair value for investors today remains about $8 to $9 per share. I would practice patience in this very turbulent technology environment.

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