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Bulked-Up Oracle Gets Tested

Padded with acquisitions, the software provider offers a glimpse at business software demand.

SAN FRANCISCO -- Oracle (ORCL) - Get Report, which has bulked up through a high-impact acquisition program, is riding a wave as a mature provider of integrated business software.

But maturity can often be the foe of spectacular stock growth.

When the software database giant reports first-quarter financial results later Thursday, most Street expectations call for the company to meet expectations in what is a seasonally weak quarter. Analysts polled by Thomson Financial are expecting earnings per share, excluding items, of 21 cents on revenue of $4.34 billion.

For many investors, the attraction of business clients to Oracle's multilayered software "stack" is a reason to keep the faith.

"We continue to believe that Oracle's acquisition strategy and its ability to offer the most complete enterprise software stack is allowing it to take market share from some of its traditional competitors," wrote Friedman Billings analyst David Hilal. His company makes a market in Oracle.

The company's primary competitor in business software is

SAP

(SAP) - Get Report

, which on Wednesday unveiled its Web-based suite for the first time. Oracle already delivers its Siebel CRM software over the Web, but both companies have been challenged to step up with subscription-based offerings by

Salesforce.com

(CRM) - Get Report

and privately held

NetSuite

.

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The recent spotlight on a strong financial performance by SAP is no small part of the sentiment surrounding Oracle's results. Last month, Germany-based SAP said it posted quarterly revenue growth of 10%, while its business-application market share rose nearly one full percentage point.

Investors have taken notice: In the last three months, shares of SAP have climbed nearly 15%, while Oracle has advanced less than 5%.

Of the top 19 outside investors in Oracle, 13 have shed a percentage of their holdings this year, according to Thomson Financial.

Fidelity

dropped 18.2 million shares, or 18% of its Oracle stock during the most recent quarter. And

Putnam Investment Management

sold 15%, or 6.3 million shares. Putnam did not return a phone call seeking comment.

One Internet-stock fund manager, who asked not to be named, said Oracle, like many software stocks, can no longer be considered a value play due to its price appreciation over the last two years.

During the past 12 months, Oracle has risen 29%, closing Wednesday at $20.84 -- not far from analysts' median price target of $23.75. Oracle is trading at 15.5 times future earnings.

Also affecting Oracle's results -- and future stock price -- is the company's significant exposure to the financial services sector.

While Bear Stearns analyst John DiFucci expects continued strong maintenance revenue, "reflecting leading industry renewal rates," another Wall Street observer says that maintenance and new license revenue could be Oracle's Achilles' heel.

Oracle's maintenance fees account for 45% of revenue, according to Global Equities Research analyst Trip Chowdhry. And both revenue sources may be hit by 2% to 4% by the faltering subprime mortgage market.

Given the continuing shakeout for financial customers, Oracle's guidance for future periods may be an even greater stock catalyst than usual.

Investors also will be watching to see if the company continues buying back shares at the rate of $1 billion per quarter, according to DiFucci.