Oracle ( ORCL) faces an unusual problem when it releases earnings later Thursday: Too much optimism, and it risks sparking a rally in the stock of a company it is trying to acquire.

It shouldn't be too tall an order.

"This looks to be the most underwhelming Oracle fourth-quarter in memory," said Cheng Lim, who follows Oracle for Fulcrum Global Partners. (Fulcrum does not do investment banking.)

Lim and many other analysts are focused on Oracle's hostile $5.1 billion bid to buy PeopleSoft ( PSFT), which is itself attempting a friendly takeover of rival software maker J.D. Edwards ( JDEC). (PeopleSoft said Thursday its board voted unanimously to recommend that stockholders reject Oracle's takeover bid. Oracle responded expressing disappointment in the action.)

Lim is a little less positive about the quarter than the Wall Street consensus, but both expect year-over-year revenue to decline a bit, while earnings increase modestly.

Analysts polled by Thomson First Call expect the company to earn 14 cents for the quarter ended May 31, compared to 12 cents a year ago, and they expect total revenue of $2.75 billion, down from $2.77 billion last year.

Among the key indicators: new license revenue from databases and applications as well as deferred revenue, all of which give an indication of how much new business the company is generating.

Core Snore

Oracle's core database business is not growing. In the fourth quarter of 2002, admittedly a stronger-than-usual segment, new database licenses totaled $1.15 billion. Eric Upin of Wells Fargo Securities expects a decline of about 5% to $859 million this year, and Lim estimates a drop to $795 million. More telling, perhaps, was the third-quarter year-over-year decline from $629 million to $602 million, a drop of 4.1%. Wells Fargo does not have a banking relationship with Oracle.

Oracle's application business has been disappointing, and that, of course, is one big reason the company is pursing PeopleSoft, whose applications in human resources and other areas sell well. A year ago, Oracle's new-application license revenue was $245.7 million. Upin expects a drop of 6% to $231 million.

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