NEW YORK (CNN/Money) - Oracle's more than a year-long fight to acquire software rival PeopleSoft has now reached the courtroom. An antitrust trial began in San Francisco last week.

But the company has a more daunting task than convincing a judge that it should be allowed to proceed with its hostile takeover bid for PeopleSoft. Oracle and its controversial CEO Larry Ellison need to show the market that this battle has been worth it.

So far, investors are unimpressed. Shares of Oracle have fallen 12 percent so far this year and have lagged rivals by a substantial basis since announcing the PeopleSoft bid a year ago.

But Wall Street's sentiment could change if Oracle is able to report a strong fiscal fourth quarter report after the closing bell Tuesday.

For that matter, solid sales growth could be a sign that the overall market for software could finally be heating up. Software stocks have not done as well as other tech sectors, such as chips and networking equipment, during the past year.

Analysts are predicting earnings of 18 cents a share for Oracle, up 12.5 percent from a year ago, according to Thomson First Call. Sales are forecast at $3.07 billion, an 8.5 percent increase from last year.

"The Street is not expecting disappointment or glorious things but ho-hum results," said Robert Mattson, an analyst with Gartmore Global Investments, a mutual fund firm that owns Oracle. "Things are getting incrementally better."

Oracle is at a bit of a crossroads. The company is trying to lessen its reliance on its huge, but maturing, database software business, which accounted for more than 75 percent of total sales in its third quarter.

Software's latest holy grail is the so-called applications business, selling software that helps corporations automate routine tasks such as accounting and supply chain management.

Larry Letdown Oracle's stock has been a software sector laggard during the past year. Company  Price change (12 months)  SAP  27.4%  PeopleSoft  6.4%  Siebel Systems  -3.4%  Oracle  -11.8%   Source:  Thomson/Baseline

In fact, Microsoft disclosed last week that it had held merger talks in 2003 with applications industry leader SAP. And Oracle is hoping to increase its presence in this market by acquiring PeopleSoft, another big player in applications.

PeopleSoft's strength with small and mid-sized corporate customers is particularly enticing to Oracle. Large businesses, sometimes referred to as enterprises, are starting to spend more on software as the economy improves but the small to mid-sized market is viewed as having more growth potential.

"As far as I can see the enterprise market is pretty tapped. There is not going to be the same growth rates as in the late '90s," said Steve Trotta, a software analyst with Technology Business Research. "Now it's the mad gold rush to the small and mid-sized business market and I don't believe Oracle is well positioned for that market."

So in order for Oracle to please Wall Street, it will probably need to show signs of increased demand in its applications business.

In the third quarter of this year, new application software license revenues, a widely watched gauge of demand, came in at $140 million, unchanged from a year ago. The company reported new applications license sales of $246 million in last year's fourth quarter.

But there have been some questions about whether Oracle's bid for PeopleSoft has proven to be an unnecessary distraction that is eating into new software sales.

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"Without question this battle has been time consuming and draining. How much better could the numbers have been if management had been freed up to focus on the business and not reading legal briefs?" said Eric Upin, an analyst with Wells Fargo Securities.

To that end, another analyst thinks that regardless of how strong (or weak) Oracle's numbers are, it's hard to imagine the stock moving materially higher until there is a final outcome to the PeopleSoft story.

"While the quarter's financials are important, the stock performance keys off the PeopleSoft decision," said Gary Abbott, an analyst with Merriman Curhan Ford. "A resolution will be positive one way or another."

But it's unclear when that will be.

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If Oracle loses its case against the Department of Justice, it could appeal, further dragging out the process. If it wins, it still would have to probably go through a similar antitrust battle against European regulators. (SAP is based in Germany.) And oh yeah, it still would have to convince PeopleSoft's board to agree to a deal.

That all adds up to more frustration for Oracle longs. Gartmore's Mattson said he thinks that Oracle's bid for PeopleSoft makes a lot of strategic sense but concedes that Oracle's fundamentals are likely to remain overshadowed by the protracted takeover battle.

"Indications are that the software market is improving and this is not commensurate with what the stock is doing," said Mattson. "It's just a painful thing to keep reading about this soap opera."

Analysts quoted in this story do not own shares of companies mentioned and their firms have no investment banking relationships with the companies.