Updated from 12:18 p.m. EDT

PeopleSoft ( PSFT) warned Wednesday that second-quarter sales and earnings will miss estimates, laying the blame on a factor that hadn't previously been a significant drag on its business: bad publicity related to Oracle's ( ORCL) $7.7 billion hostile takeover offer and the related antitrust trial.

The rationale, coming in a quarter when the trial made headlines but the bid itself looked dead in the water, sparked some skepticism on Wall Street.

"While it would be convenient to blame this miss completely on the Oracle trial, we think it affirms our fundamental thesis that there are no synergies from the J.D. Edwards-PeopleSoft merger, and the core PeopleSoft product cycle has been played out," commented Jason Maynard, software analyst at Merrill Lynch, who has a sell rating on PeopleSoft. "Even we were surprised by the magnitude of this miss, given our longstanding pessimistic view of the business." (Merrill has received compensation for non-investment banking services or products from PeopleSoft within the last year.)

PeopleSoft will earn a pro forma 13 cents to 15 cents a share on revenue of $655 million to $665 million in the three months to June 30, with new software license revenue coming in at $129 million to $133 million. Bottom-line earnings will be 3 cents to 5 cents a share.

Analysts surveyed by Thomson First Call were expecting pro forma earnings of 21 cents a share on revenue of $689.3 million. On April 22, PeopleSoft put second-quarter license revenue at $150 million to $170 million.

But whereas other software players got slammed in recent days after chalking up poor second-quarter results to anemic corporate demand, PeopleSoft shares were rebounding after an early slide.

After trading as low as $15.39 intraday -- a 52-week low and more than $5 below Oracle's $21-a-share takeout offer -- PeopleSoft shares rebounded and were recently up 12 cents, or 0.7%, at $16.92. The comeback was particularly impressive compared to the huge hit suffered by fellow software maker Veritas ( VRTS) after it announced a big second-quarter miss Tuesday; Veritas led a parade of software vendors who preannounced weak results Tuesday and were recently sliding Wednesday.

Enough other software companies have warned to make it unlikely that the Oracle trial was the only factor responsible for PeopleSoft's shortfall, said Rich Parower, portfolio manager of the ( SHGTX) Seligman Global Technology fund, which held PeopleSoft shares earlier this year but no longer does. Several software companies have talked of longer sales cycles, particularly in North America, he noted.

A Boon for the Lawyers

In a press release, the Pleasanton, Calif.-based business applications software giant laid out a case for taking its profit-miss to court.

"Although we have been able to meet or exceed our financial projections since Oracle launched their hostile tender offer more than a year ago, the extensive publicity of the antitrust trial during the last month of our quarter was impossible to completely overcome," PeopleSoft said. "We believe the adverse impact to our business has been substantial, with even greater impact this past month. We look forward to returning to normal business soon and recovering these damages."

One buy-side analyst, who asked not to be named, said the Oracle trial excuse makes sense. "I think if you do the math in terms of new customer contribution typically being about 30% and you assume a third of those people decided to just wait a month to see what the outcome of the trial was, you can pretty much explain the miss to the bottom end of the guidance," said the analyst, whose firm holds PeopleSoft shares.

Despite that math, though, he acknowledged PeopleSoft may have been pulling sales up its pipeline. "It's difficult to exactly handicap what the Oracle impact was and what the impact was of any back-scratching they received from partners on the pipeline," he said. For instance, PeopleSoft closed a $10 million deal with partner and Oracle foe IBM ( IBM) in the fourth quarter, he noted.

Sanford C. Bernstein analyst Charlie Di Bona echoed that concern about PeopleSoft pulling sales forward in its pipeline. "The magnitude of the miss may reflect prior draining of the pipeline. There's no way to know for sure, but it is a big miss," Di Bona said. "I think Oracle impacting sales is only on the margin."

Di Bona, who has an underperform rating on PeopleSoft, has argued for months that PeopleSoft's 2004 guidance is too aggressive, in part because he believes the company has overstated the efficiencies of integrating its J.D. Edwards acquisition. (Bernstein doesn't have an investment banking business, but its parent, Alliance Capital, holds PeopleSoft shares.)

The litigation-minded rhetoric, which comes as Oracle tries to circumvent Justice Department opposition to its plan in court, appears to be setting the stage for PeopleSoft to intensify its legal fight against Oracle to recover damages. The company sued Oracle in California's Alameda County Superior Court in June, charging that the purpose of Oracle's hostile takeover bid was to interfere with PeopleSoft's business.

PeopleSoft's miss Wednesday also comes after CEO Craig Conway took the defensive three months ago when he reported first-quarter results. At that time, PeopleSoft beat its own numbers but not analyst estimates, prompting Conway to acknowledge resentfully that there was material in the first-quarter results for the "glass-half-empty crowd."

Those comments came in stark contrast to PeopleSoft's first quarters after the J.D. Edwards merger. In trumpeting a stellar third quarter of 2003, for instance, Conway described the company as an "engine hitting on all cylinders," pointing to a "customer protection plan," or money-back guarantee, that the company implemented for customers who were concerned an Oracle takeover would devalue their software purchases. That program was curtailed once in 2004 but reinstated.

Now, analysts say, PeopleSoft is finally going to have to lower its guidance for the full year, which targeted pro forma earnings at 90 cents to 95 cents a share on revenue of $2.8 billion to $2.9 billion. The consensus estimate among analysts Street currently projects PeopleSoft will earn 90 cents a share on $2.84 billion in revenue this year.

"If they don't lower 2004 numbers , it will just upset everybody," the buy-side analyst long PeopleSoft said.

The analyst said he believes the stock is finding its bottom around $16 and won't fall much lower because investors are expecting full-year numbers to come down, which would likely happen when PeopleSoft announces final second-quarter results July 27.

A hedge fund manager who used to be short the stock agreed. "I think all the bad news is out now," said the manager, who asked to remain anonymous. "At this point, the stock is dirt cheap compared to its historical trading pattern."

Overall, PeopleSoft appears to have had unrealistic expectations about J.D. Edwards, the Oracle hostile takeover and even the economy. "I think they hoped the trial thing would go away, or that the economy would bail them out a little bit, neither of which has happened yet," the buy-side analyst said.

In addition, PeopleSoft's decision to maintain both its own software code and that of J.D. Edwards limits PeopleSoft's ability to cut costs and cross-sell products to customers, Di Bona said. PeopleSoft estimated it would shave $167 million to $207 million in costs in 2004 as a result of the merger with J.D. Edwards.

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