Oracle Slips on Sales Shortfall

Updated from March 26.

SAN FRANCISCO -- Today's lesson: Even large-cap tech stalwarts are vulnerable to market forces.

Oracle(ORCL Quote) shares fell in after-hours trading Wednesday and again in pre-market trading Thursday after the database software giant posted third-quarter revenue that came up short of Wall Street expectations.

Oracle's top line grew 21% to $5.35 billion from $4.41 billion for the same quarter of last year, but analysts were expecting $5.42 billion, according to Thomson Financial.

The Redwood Shores, Calif. company's net income grew 30%, to $1.34 billion, or 26 cents a share, vs. $1 billion, or 20 cents a share, in the year-ago period.

Excluding items, EPS was 30 cents, in line with analysts' estimates.

On the conference call, Oracle President Charles Phillips attributed the revenue shortfall to a temporary "inflection point" in late February, as businesses reacted to market turmoil by delaying the license renewal process. He said that point had already passed, with one large delayed deal already closing in early March.

President and CFO Safra Catz forecast fourth-quarter revenue growth of 15% to 19%, implying a top-line range of $6.7 billion to $6.94 billion. Excluding items, EPS will be 43 cents or 44 cents. Analysts were expecting revenue of $6.74 billion and earnings excluding items of 44 cents.

During the quarter just ended, new license software sales grew 16%, or 9% on a constant-currency basis, according to the company.

For the current fourth quarter, new software license revenue is projected to grow between 10% and 20% Catz said.

Catz said certain factors could mean that fourth-quarter new-license revenue numbers may come in at the "extreme high end of the range, or even above it."

"Looking at the massive increase in the pipeline for the fourth quarter, I've used a lower close rate" than was used to forecast the quarter just ended, Catz said. "We could find ourselves at the low end, although that is less likely" given the lower close-rate used in the assumptions.

"For the fourth quarter, nothing heroic is assumed here," Phillips said.

Also, the comparisons to the fourth quarter of 2007 will be much easier to beat in the applications business, where sales were lower than expected during the quarter just ended, CEO Larry Ellison said.

During the third quarter, the operating margin, excluding items, was 41%, improving a total of 200 basis points through the first three quarters of the year, Catz said. During the coming fiscal year, "we expect margins to continue [to improve] with scale."

Free cash flow for the quarter was $6.99 billion, up 48% year over year. "For the first three quarters of this year we have grown our operating cash flow 55%," Catz said in a statement.

Oracle's report comes on the heels of Cisco Systems'(CSCO Quote) report last month that suggested a potentially weaker year for corporate tech spending. IBM(IBM Quote) and Intel(INTC Quote) are scheduled to report earnings within the next few weeks.

Shares were recently 7.5% lower at $19.35 in pre-market trading.