Oracle Tumbles After Sales Outlook Letdown

Oracle shares fell sharply a day after the company posted disappointing quarterly software sales and said its customers had become more cautious, quashing the idea that the software sector would be immune to the economic turmoil that has roiled the rest of the tech sector.

Oracle's headquarters in Redwood City, California.
Paul Sakuma
Oracle's headquarters in Redwood City, California.

Oracle shares fell 8 percent in premarket trading, which also pulled down the stocks of other software makers like SAP, which fell more than 6 percent premarket.

Chief Financial Officer Safra Catz warned that businesses had delayed approving purchases of Oracle's software toward the close of its fiscal third quarter, which ended on Feb 29. The company would likely have a tougher time closing sales this quarter than it did a year ago, she added.

"Customers got a little more cautious toward the end of the quarter," Catz said on a conference call with analysts following the results.

Oracle's stock had gained 10 percent in the month leading up to Wednesday's fiscal third-quarter earnings report, on expectations the results would be a bright spot among an increasingly disappointing flow of corporate results.

"People have turned to the software sector in general as somewhat defensive, but it's not immune," said Charles DiBona, an analyst at Sanford C. Bernstein & Co who has a "market perform" rating on Oracle shares.

As Oracle's fiscal quarter closes a month earlier than the typical March 31, investors look to it as an indicator of how other software makers will perform.

While profit matched market expectations, Oracle's sales of new software -- which investors look to as an indicator of future financial performance -- rose 16 percent, near the low end of its December forecast of 15 to 25 percent growth.

Sales of new business management software rose 7 percent to $451 million, short of the $553 million that Wall Street was expecting according to Brendan Barnicle, an analyst at Pacific Crest Securities.

Shares of rival SAP, the No. 4 software maker by total sales but No. 1 in business management, were off 6.2 percent, while IBM was down more than 1 percent and Microsoft dipped 0.7 percent.

Business Management Software

Goldman Sachs analyst Sarah Friar said that Oracle's sales of business management software, or applications, such as accounting programs, were particularly disappointing.

"The applications business is definitely very weak. That makes me worry about what software (results of other companies) will look like for the March quarter. I think this is definitely going to spook the market," said Friar.

Oracle's results had previously outperformed expectations.

This was the first quarter that it has disappointed Wall Street since the economic downturn began.

Net income in the quarter rose 25 percent to $1.34 billion, or 26 cents per share, from $1.03 billion, or 20 cents, a year earlier, the company said.

Profit excluding items was 30 cents per share, which was in line with Wall Street forecasts. But non-GAAP revenue was $5.37 billion, which was lighter than the average analyst forecast of $5.415 billion, according to Reuters Estimates.

New software sales figures are followed because the customers also sign maintenance contracts that cost 20 percent of the product price per year. Also, software makers get extra revenue from customers when they expand the number of workers using a computer program that they have already purchased.

Oracle shares were down to $19.15, or 8.5 percent, in after-hours trading after closing at $20.94 on Nasdaq.