NEW YORK (CNN/Money) -
It hasn't been a good year for Oracle CEO Larry Ellison.
His yacht didn't make it into the America's Cup finals. And he was knocked out of the top five in Forbes magazine's latest ranking of the world's richest people...he's now No. 6. Poor Larry.
But as Oracle prepares to release its latest quarterly results Tuesday, there are more pressing concerns.
Oracle lost market share in database software last year while IBM and Microsoft gained ground, according to a recent report by tech research firm IDC. Oracle generates the bulk (84 percent) of its licensing revenue from database software, with the remainder coming from applications (think software that manages customer relations and the supply chain).
One problem may be its rich pricing, according to Richard Williams, strategist for Summit Analytic Partners, an independent research firm. "There is a very real risk to Oracle," said Williams. "All of the enterprise software companies are making a major push down market." Williams does not own Oracle shares.
Watch the sales line
According to First Call, analysts are expecting Oracle (ORCL: Research, Estimates) to report earnings of 10 cents a share and revenues of $2.3 billion for its third quarter ended last month. If Oracle meets its revenue estimates, it will be the first time in seven quarters that the company posted a year-over-year gain in sales. Oracle reported revenue of $2.2 billion a year ago and earnings of 9 cents a share.
But meeting that sales estimate isn't a given. Jason Brueschke, an analyst with Pacific Growth Equities, wrote in a report Monday that he was expecting Oracle to slightly miss sales estimates due to weaker-than-expected application license sales. Oracle's applications business is hoped to be one of Oracle's key growth areas as the database market matures.
Mark Verbeck, an analyst at ThinkEquity Partners, agrees and is also concerned about Oracle's current fiscal fourth quarter and the tech sector in general. "The environment hasn't changed dramatically. CIOs are still saying tech spending is flat," said Verbeck.
Verbeck thinks that Oracle will give guidance on revenues for its fiscal fourth quarter, typically its strongest, that is lower than what Wall Street is expecting. The consensus is $2.9 billion but Verbeck is forecasting sales of $2.8 billion for the quarter, no growth from a year ago.
Cutting costs but stock is expensive
But Verbeck said that even if Oracle warns on sales, it probably should still be able to hit current earnings estimates of 14 cents a share. That's because Oracle, like many other large tech companies, has been able to lower costs substantially. Verbeck does not own shares of Oracle and his firm does no investment banking for the company.
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Still, it's not as if Oracle's earnings are increasing at a dramatic pace. Oracle earned 14 cents a share in the fiscal fourth quarter of 2002 as well, and analysts are expecting full-year earnings of 41 cents a share, unchanged from 2002.
With that in mind, Williams said that Oracle's stock appears to be a bit pricey, trading at 27 times next fiscal year's earnings estimates. He said the stock would be more reasonably valued at about $9, closer to 20 times earnings estimates. The stock closed on Monday at $12.35.
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