A currency tail wind and a modest improvement in Oracle's ( ORCL) ailing applications business likely will help the database giant hit its second-quarter financial targets. On Monday, Morgan Stanley analyst Ross MacMillan raised his estimates of license revenue for the quarter, the latest in a recent flurry of sell-siders expressing confidence in Oracle's near-term prospects. "We have not changed our underlying estimates, but due to foreign exchange, our license revenue estimate increases from $872 million to $888 million, in line with consensus," he said in a note. "Our EPS forecast remains at $0.13." MacMillan also raised his forecast for earnings in 2005 and 2006 by 4% and 3%, respectively, to reflect the dollar's recent drop. (Morgan Stanley has a current investment banking relationship with Oracle.) Similarly, First Albany analyst Mark Murphy said last week in a note that "recent discussions with Oracle-related industry contacts suggested that the November quarter seemed to be 'good, but not a blowout.'" (First Albany does not have a current investment banking relationship with Oracle.) Analysts polled by Thomson First Call are expecting a profit of 13 cents on sales of $2.63 billion. Although Oracle's application
business was terrible in the first quarter, with license revenue down 36% year over year, Murphy believes that it picked up in the second quarter and will be off only about 1% from last year. According to Murphy, the deal pipeline has improved, and Oracle is close to landing a deal worth $30 million with a Fortune 100 customer. With its heavy offshore sales, Oracle, is well positioned to take advantage of the weak dollar. So far this quarter, the dollar has fallen by 6.47% to a record low against the euro, and by 7.7% to a four-year low against the yen -- moves that have helped other software companies as well.
The favorable coverage comes as 25,000 customers, partners, employees, analysts and journalists packed San Francisco's Moscone Convention Center for the opening day of Oracle's largest-ever user convention. Items high on the agenda included Oracle's increasing focus on smaller customers and the company's renewed efforts to gain share in the business intelligence software market. Oracle will offer its Business Intelligence suite as a standalone product, with a dedicated sales and marketing effort, instead of "hiding" the product in its massive technology stack, MacMillan said. Oracle Co-President Charles Phillips kicked off the convention with a 45-minute talk, but said nothing about the company's lengthy battle to buy rival software company PeopleSoft ( PSFT). Phillips said that a Delaware judge will hold a hearing next week on Oracle's efforts to void PeopleSoft's antitakeover defenses, and he expressed confidence in Oracle's ability to acquire the company and retain key PeopleSoft developers after the merger. The judge is not expected to rule until sometime in January, an Oracle representative said. Oracle's $24-a-share bid was supported last month by shareholders controlling 61% of the target company's stock, but PeopleSoft's board rejected the offer, setting a stage for a proxy fight at PeopleSoft's annual meeting next spring.