Oracle 3Q Earnings Drop

The economy may be turning around, but there are no signs of it at Oracle. The software vendor Thursday reported lower earnings for its third quarter ended Feb. 28 on a drop in sales from one year ago, including a 30% plunge in new software license sales. Earnings of $508 million (9 cents per share), down 13% from one year earlier, were in line with preliminary results the company reported March 1.

Oracle reported sales of $2.23 billion for the quarter, down 17% from one year ago. Although license-renewal revenue was up 5%, the steep drop in new software sales, combined with a 7% decrease in service-related revenue to $1.44 billion, took a toll on the company's top line. Sales of application and database software were down 41% and 23%, respectively, while sales of application server software grew 35%. Some of Oracle's key markets, including telecommunications, high technology, and financial services, remain especially weak.

Oracle is cautious about its current quarter. "As far as we can tell, spending for enterprise hardware and software remains very soft and does not appear to be improving," CFO Jeff Henley said during a conference call with Wall Street analysts. New license revenue will likely be down 25% to 30% this quarter, he said. "Despite the fact that economic data suggests the U.S. economy is starting to improve, it appears to us that improvement in tech spending will continue to lag the overall recovery," he added.

Wells Fargo Securities analyst Rob Tholemeier worries about Oracle's current quarter. Customers tell him the vendor is scrutinizing customer contracts, attempting to squeeze more dollars out of them. (Henley said Oracle has an ongoing license-compliance program, but said there was no unusual activity in the third quarter.) "You would need a miraculous rebound in IT spending for them to make their fourth-quarter numbers," Tholemeier says. "And I don't think that's going to happen."