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Software Makers Rise on Oracle, SAP Outlooks

Siebel and PeopleSoft catch a wave as investors hope business has bottomed.
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Updated from 2:52 p.m. EST

Several big software firms rose in trading Wednesday, following upbeat comments from

Oracle

(ORCL) - Get Report

and a preannouncement from Germany's

SAP

(SAP) - Get Report

.

Oracle, the database software maker, said Tuesday that business is turning a corner. "We're optimistic. We definitely think the worst is over and things are going to start getting better," Oracle's chief financial officer, Jeff Henley, was quoted as saying at the Morgan Stanley Internet, Software & Networking Conference.

The news appeared to be part of a larger set of circumstances driving tech stocks and blue-chips higher earlier in the session. The major averages were solidly positive for much of the day, but late selling led the indices

to close lower. Still, the suggestion of a turnaround in the software industry was enough to send those stocks out with gains, though they did end below their best levels of the day.

Oracle rose 5.5% to $16.73. Among other software stocks, SAP gained 9.7% to $36.44,

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Siebel Systems

(SEBL)

climbed 3.4% to $34.56, and

PeopleSoft

(PSFT)

rose 1.4% to $40.90.

Not everyone was convinced today's gains will stick, however. In a research note, Mary Werner, an analyst at A.G. Edwards, downgraded Oracle to hold from buy. "This run-up is based on some evidence and excitement that we are at a turning point," she wrote, "but we do not feel the growth and value created by this turnaround is enough to warrant purchasing the stock at current prices."

Shares of Oracle shed 42% in 2001, but they're up 21% since the beginning of this year.

One of the main concerns for the sector centers around when software customers will start buying again. As a result of slow application and database sales, Oracle has recently shifted its focus to software that connects programs and Web sites to the databases behind them.

In the third quarter, Oracle expects earnings to be flat with the same period a year ago. For the fourth quarter, the company expects to produce income that will be 2 cents to 3 cents ahead of last year's bottom line of 15 cents a share.

Elsewhere, SAP said it believes it matched estimates calling for 20% growth in operating margins in 2001, and the company said fourth-quarter revenue exceeded 1 billion euros. That performance, SAP said, would lift 2001 revenue by 16%, but the company added that the near-term environment remains challenging. "Based on current economic conditions, we anticipate that customers will continue to invest cautiously in e-business software solutions," SAP said in a statement.

Some Wall Street analysts were encouraged by SAP's announcement this morning. "These results are obviously good for SAP and show their ability to further penetrate their installed base of customers with a broad set of products," Goldman Sachs analysts said in a research note today.

According to Goldman, there has been more seasonal spending on software than originally expected. The analysts said they were optimistic that Siebel and PeopleSoft will also have strong results in the December quarter, even though SAP offered the first piece of data they've seen.