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1/31/2002
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Signs Point To Possible Relief From Spending Drought

Some of the major high-tech vendors are signaling that customers appear more willing to spend this year than they have been over the last several quarters.

Are IT software managers who have been miserly during the recession starting to change their ways? Maybe. Some of the major high-tech vendors are signaling that customers appear more willing to spend this year than they have been over the last several quarters.

The latest sign comes from Oracle, which gave financial analysts an upbeat view during its analyst meeting Wednesday at the company's Redwood Shores, Calif., headquarters. Management guidance remained unchanged for the current fiscal third quarter, with a year-over-year decline in the high teens expected in license revenue and earnings per share of 10 cents. For the fourth quarter, Oracle projected license revenue to be about flat with the previous year and earnings per share in the range of 17 cents to 18 cents. Taken quarter-to-quarter, license revenue would grow 77%.

But one of the main reasons Oracle management is positive about the rest of 2002, particularly the second half, is the apparent improvement in sales opportunities. "Oracle expects very gradual improvement," Neil Herman, software analyst for Lehman Brothers, said Thursday. "Nevertheless, the company appears to be seeing much of the same early evidence of an increasing proclivity amongst IT software managers to purchase software." Besides maintaining a "buy" rating on Oracle stock, Herman said the meeting "increased our confidence in a slow, gentle return to health of the software sector over the next several quarters."

Analysts for Friedman, Billings, Ramsey & Co. left the meeting with a similar feeling, saying: "In terms of the broader economic conditions, almost everyone yesterday suggested that the selling environment had started to improve in November, and for the most part they are mildly optimistic for the coming year." The firm has reiterated its "accumulate" rating of Oracle stock.

Other large software vendors have also been upbeat. PeopleSoft Inc. reported last week that it expected a "mild recovery" in the second half and predicted a 15% increase in software revenue for the year. SAP also surprised analysts by predicting 15% revenue growth for the year. The overall economy is also showing signs of improvement; new data indicates the economy stopped shrinking in the fourth quarter of last year. A Commerce Department report said the inflation-adjusted gross domestic product grew at an annual rate of 0.2%. While that number could later be adjusted downward, collectively, the forecast is calling for some relief from the spending drought.

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