NEW YORK (CNN/Money) - Oracle Corp. reported better-than-expected earnings for the latest quarter Tuesday, helped by higher sales, but investors were disappointed by weak licensing revenue and a murky outlook from the world's largest database software company.

The stock plunged nearly 7 percent, to $11.43, in heavy trading Wednesday morning.

Redwood City, Calif.-based Oracle said it posted net income of $571 million, or 11 cents a share, for its fiscal third quarter ended Feb. 28, up from $508 million, or 9 cents a share, a year earlier. Analysts were expecting 10 cents a share, according to First Call.

Sales edged up to $2.3 billion, matching forecasts, from $2.2 billion a year ago, marking the first time in seven quarters that Oracle (ORCL: Research, Estimates) had a year-to-year sales gain.

"Given the difficult global economy and the increasing uncertainty caused by the impending war in Iraq, we were pleased to see modest revenue and operating earnings growth in our fiscal third quarter," Oracle Chief Financial Officer Jeff Henley said in a statement.

Citing this uncertainty, Henley offered a wide range for fiscal fourth-quarter sales and earnings. On the company's conference call, he said sales would be from 6 percent lower to 2 percent higher than last year's total of $2.77 billion. That implies a range of about $2.6 billion to $2.8 billion, lower than Wall Street's current average forecast of $2.85 billion.

Henley added that earnings would be in a range of 12 to 15 cents a share, about in line with Wall Street's estimate of 14 cents.

Sales of new software licenses in the third quarter, a key measure for investors, sank 4 percent from a year ago to $755 million. Jason Brueschke, an analyst with Pacific Growth Equities, wrote in a note Monday that he had been expecting license revenues of $777 million for the quarter.

The company gave more detailed information about its license revenue on its Web site and the news did not look good. Revenue from its bread-and-butter database business declined 6.3 percent from the prior quarter and 4.2 percent from a year ago.

And sales of applications software, products such as customer and supply chain software for businesses, fell 5.3 percent from a year ago. Investors are hoping to see growth in applications as the database software market matures.

"Applications are the only place where you can get the type of growth to justify a premium multiple for Oracle's stock. Going forward, Oracle will get 10 percent growth out of the database side at best," said Michael Mahoney, managing director for EGM Capital, a hedge fund that focuses on technology stocks. He does not have a position in Oracle.

But Oracle CEO Larry Ellison said during the call that Wall Street was focusing too much on new license revenue and ignoring the fact that license updates and support revenue grew 16 percent from a year ago.

Eric Upin, an analyst with Wells Fargo Securities, said Ellison does raise a good point. "This is indicative of a healthy company base and being able to generate sales from existing customers," he said.

But Upin quickly added that Oracle, at about 30 times fiscal 2003 earnings estimates, trades at a rich valuation. So new license growth is needed to justify this multiple, he said. Upin does not own the stock and Wells Fargo does not do investment banking for Oracle.

Another possible cause for concern is that the better-than-expected earnings might have been more of a function of currency fluctuations as opposed to cost-cutting, Pacific Growth's Brueschke said. More than a third of Oracle's revenues came from its Europe, Middle East and Africa division (the bulk of that from Europe) and Brueschke said that the strong euro could have helped Oracle's bottom line.

"Investors shouldn't be buying or selling a stock based on currency. That's not related to Oracle's fundamentals," he said. Brueschke does not own Oracle and his firm has no investment banking relationship with the company.

And the looming war with Iraq remains a big wild card. Henley said during the call that Oracle's business was actually very strong in December and January, the first two months of its third quarter, but ground to a halt in February as war fears escalated. To that end, he said that new license revenue in the fourth quarter could come in anywhere from down 15 percent to up 5 percent from a year ago.

Wells Fargo's Upin said that Oracle's uncertain outlook spells trouble for many other software companies as well. Most software firms wrap up their quarter in March. So if they, like Oracle, saw a drop-off in contract signings in February and this month, that leaves them with only one good month.

Because of the strong January, many analysts raised their earnings forecasts for software companies, but now they might need to lower their estimates. "There was a feeling that the first quarter started off well and that software companies could beat their numbers," Upin said. "That's off the table now."

To that end, shares of Oracle rivals SAP (SAP: Research, Estimates), Siebel Systems (SEBL: Research, Estimates) and PeopleSoft (PSFT: Research, Estimates) all sank Wednesday morning as well.