Updated from 9:33 a.m. EDT

PeopleSoft ( PSFT) dropped Wednesday after the software company posted a 70% drop in second-quarter earnings after the close Tuesday on lower-than-forecast revenue.

Reiterating earlier charges that the Oracle ( ORCL) antitrust suit is hurting sales, PeopleSoft said it won't hit 2004 guidance but declined to offer new targets for the rest of the year.

PeopleSoft shares were recently down 58 cents, or 3.4%, to $16.74.

Under generally accepted accounting principles, Pleasanton, Calif.-based PeopleSoft reported net income of $11 million, or 3 cents a share, in the second quarter. That compared with net income of $36.5 million, or 11 cents a share, in the same period a year earlier.

Excluding charges, PeopleSoft said it earned pro forma net income of $50.5 million, or 14 cents a share, in the second quarter, compared with pro forma net income of $53.8 million, or 17 cents a share, a year earlier.

Revenue rose 30.1% to $647.3 million from $497.4 million the prior year. License revenue totaled $130 million, up 16.4% from a year earlier. In a postclose conference call, CFO Kevin Parker pointed out that excluding the impact of a $15 million deferred maintenance writedown related to the J.D. Edwards acquisition, revenue totaled $662 million -- in line with the company's preannounced range.

The consensus estimate on Wall Street, which was lowered after the company's preannouncement, called for PeopleSoft to earn pro forma net income of 14 cents a share on $661.6 million in revenue in the second quarter, according to Thomson First Call.

Earlier this month, PeopleSoft warned that second-quarter earnings and sales would miss estimates. The company said it would earn pro forma earnings of 13 cents to 15 cents a share on revenue of $655 million to $665 million in the second quarter, with new software license revenue coming in at $129 million to $133 million. Bottom-line earnings were forecast to be 3 cents to 5 cents a share.

At that time, PeopleSoft blamed bad publicity surrounding Oracle's $7.7 billion hostile takeover offer and the related antitrust trial. That explanation, however, was not roundly accepted on Wall Street, where some analysts had been predicting early in the year that the company would have to lower its targets. In addition, several other software companies warned, suggesting that PeopleSoft may have been suffering from an industrywide slowdown.

"Our financial results in the second quarter reflected the heavy media coverage of the United States of America vs. Oracle trial," PeopleSoft CEO Craig Conway said in a press release Tuesday, reiterating that earlier charge. "Clearly it was the elephant in the room for our customers."

On the conference call, Conway said he would avoid beginning with the classic "we are disappointed" phrase and instead highlight strong results after acquiring J.D. Edwards last year. The more recent media coverage of the Oracle antitrust trial is proving to be "simply too much to overcome," he said.

While some customers said they were delaying purchases until a decision was reached in the case, Conway said, others demanded lower prices after the release of discount forms during the trial. A different group took their business to German rival SAP ( SAP), which some customers presumably are viewing as a safe haven amid the Oracle-PeopleSoft battle. "Anyone who wants to give SAP credit for anything more than showing up is giving them too much credit," Conway said.

But some analysts still did not completely buy the Oracle explanation. "We remain unconvinced that this was the sole factor behind the shortfall," Sanford C. Bernstein analyst Charlie Di Bona wrote in a note Wednesday. "Instead, we believe PeopleSoft was impacted by the same market factors impacting Siebel Systems ( SEBL) and other applications vendors that missed: namely an infrastructure-focused software spending cycle; systemic pricing pressure exacerbated by the declining cost of custom development; and overblown expectations for the past several quarters that had pressured companies to meet numbers even if that meant draining pipelines."

Di Bona noted that the the total number of transactions actually increased from the first quarter to 725 from 596, and the number of new customers increased to 160 from 120, while the average selling price dropped to $346,000 from $382,000. "If customers were delaying deals based on Oracle concerns, it doesn't seem logical that transaction volumes should be up sequentially given the abundant press reporting of the trial in the second quarter," Di Bona wrote. And "if customers are truly delaying purchases because they are concerned about PeopleSoft's future independence, then price should be immaterial and even heavy discounting would not drive any sales." (Di Bona has an underperform rating on PeopleSoft and his firm doesn't do investment banking.)

While the Oracle trial was the elephant in the room, Conway acknowledged that other factors cited by other software vendors also were at play, including a slowdown of the economic recovery, Sarbanes-Oxley compliance and rising interest rates.

In another sign for how unusual the quarter was, PeopleSoft said it closed 50% of its license contracts in the last two days of the quarter -- far more than typical in the software industry, where the bulk of contracts are signed in the last weeks of the quarter.

A judge is expected to issue a decision in the antitrust case in late August or September. PeopleSoft is delaying giving guidance for the third quarter until the judge issues his decision because of its significance to the company's ability to close business, Parker said on the call Tuesday.

In addition, Parker said that as a direct result of the Oracle saga, PeopleSoft will not achieve its 2004 guidance, as many expected, and he did not give new targets. PeopleSoft's previous 2004 guidance, which many viewed as overly aggressive, called for earnings ranging from 90 cents to 95 cents on revenue of $2.8 billion to $2.9 billion, with an operating margin target of 17%.

"After fighting Oracle's hostile acquisition attempt for a year, PeopleSoft's outlook is as murky as ever," Prudential analyst Brent Thill concluded Wednesday. "While PeopleSoft's noble resistance has been impressive, we believe Oracle's $21 bid is beginning to look more interesting." (Thill has a neutral rating on PeopleSoft and his firm doesn't do investment banking.)

In a signal of Wall Street's skepticism of PeopleSoft's 2004 numbers, the latest consensus estimate was far lower, calling for the company to earn only 69 cents a share on $2.72 billion in revenue this year. Analysts were expecting 16 cents in earnings on $672.7 million in revenue in the third quarter.

The third quarter will be the first quarter where investors can begin to compare PeopleSoft on a year-over-year basis since completion of the J.D. Edwards acquisition in July 2003, Di Bona noted. " As we move toward the fourth quarter and fiscal year 2005, the comparisons for PeopleSoft become increasingly difficult as investors begin to examine PeopleSoft's revenue growth on an apples-to-apples basis," Di Bona noted. PeopleSoft has refused to break down revenue from the J.D. Edwards unit.

Fighting Oracle cost PeopleSoft $10.5 million, or 3 cents a share, in the second quarter, bringing the total cost of fending off Oracle to more than $70 million.

In the second quarter, PeopleSoft began excluding the costs of battling Oracle from its pro forma results, which has generated some criticism from analysts. "Unlike the company, we believe legal expenses are operating costs, and have included the Oracle legal expenses in our estimates," Merrill Lynch analyst Jason Maynard wrote in a note Wednesday. (He has a sell rating on the company and his firm has done banking with PeopleSoft.)

In the second quarter, pro forma earnings also excluded $16.4 million in acquisition-related costs associated with J.D. Edwards, which analysts also have quibbled with because the company has included such costs under other previous acquisitions; $10.3 million from a deferred maintenance writedown; and $2.5 million in restructuring charges.

PeopleSoft's controversial customer-assurance program, promising refunds to customers if the company is acquired, has racked up a liability totaling $2 billion at the end of the second quarter.