Analysts focus on Oracle quarterly database sales

SAN FRANCISCO (Reuters) - Investors and analysts are looking for Oracle Corp. to show renewed strength in its core database business when it reports quarterly earnings on Thursday, after disappointing Wall Street the last time around.

The software maker is expected to post a 24 percent rise in revenue and a higher profit when it reports its fiscal second quarter results. But analysts and investors who have sent Oracle stock down 6 percent over the past year say database growth is key.

Charlie Di Bona, a Sanford C. Bernstein analyst, said concern over Oracle's database business was sparked last quarter when the company reported new database sales rose a tepid 1 percent to US$492 million. The database business accounts for about 75 percent of Oracle's revenue.

"The bigger issue is how solid is the database business," Di Bona said. "Last quarter got people thinking about it."

Di Bona said for the second quarter he is looking for new database licence sales growth of 12 percent to US$848 million, slightly above the consensus Wall Street target of about an 8 percent rise to US$814 million.

He added the problem for Oracle centres on grinding out sales in a maturing industry rather than losing ground to competitors like International Business Machines Corp and Microsoft.

According to research firm IDC, Oracle is the database leader with about 41 percent of a global market estimated at US$15 billion in 2004, followed by IBM at 30 percent and Microsoft at about 14 percent.

"The bigger issue is less losing ground than a maturation of the database business," Di Bona said. "If you look at Microsoft's numbers, if anybody is taking share, it is probably them. But Oracle has done fairly well at holding share."

Wall Street is looking for the Redwood Shores, California-based company to post a higher quarterly profit on revenue of US$3.41 billion, according to Reuters Estimates.

Brad Reback, an analyst at CIBC World Markets, said he expects growth in database licence sales to boost the company's results.

"Following last quarter's stagnate growth, we believe the demand for its database software has strengthened, as the domestic climate has improved," he wrote in a research note.

He and other analysts also expect demand for Oracle's business applications to improve even as competitors like SAP AG of Germany and Salesforce.com Inc take share away.

In particular, Oracle's pending acquisition of Siebel has allowed Salesforce to poach sales from customers worried about integration and service problems stemming from the combination of the two companies, they say.

In the past two years, Oracle has spent some US$19 billion buying up its rivals as part of a bid to lead consolidation in what the company sees as a maturing industry for business software aimed at large enterprises. So far, however, investors remain far from convinced on the strategy.

Oracle stock has lost nearly 6 percent since the beginning of the year while SAP shares traded on the New York Stock Exchange have risen 3 percent and Salesforce shares have more than doubled.

Trip Chowdhry, an analyst with FTN Midwest Research, said customer defections stemming from the Siebel deal could make the company miss Wall Street's revenue target when Oracle reports earnings as well as issue a cautious financial forecast.

"The uncertainty regarding Siebel may exist for another quarter," he said. "I'm not saying the outlook will be disastrous; I'm saying at best it will be line or a little light."

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