SAN FRANCISCO -- There's a fear right now in the software sector.
The fear is that after the double-digit percentage run-up in many software stocks in recent weeks, software stalwart Oracle ( ORCL) takes the legs out from underneath the sector again with another profit warning, just as it did after its February quarter. Which is why investors at the JPMorgan H&Q Technology Conference asked Executive Vice President George Roberts during a breakout session Monday if the company was going to warn again for its fiscal fourth quarter, ending in May, as it did for the one ended in February. "I have no comment on that," Roberts said. "The good news is we have a Constitution, and we're a free country, so people can say what they want." Roberts was referring to a research note out Monday morning by Deutsche Banc Alex. Brown analyst Jim Moore that cautioned investors about a possible warning from the company in the next few weeks. In the note, Moore said consultants at a users' conference in Atlanta last week reported softness in Oracle's pipeline and that they didn't expect a turnaround for several quarters. On top of that, Moore wrote that the company was offering significant discounts, cutting prices for its applications by 50% to 70% upon initial meetings with customers. "We believe Oracle's guidance for fiscal Q4 '01 was rather aggressive, considering the macro-environment, limited visibility and recent signs of increased pricing pressure," wrote Moore, who rates the stock a buy. "We would not be surprised to see Oracle reduce estimates for Q4 '01 sometime in early to mid-May." (Moore's firm hasn't done underwriting for Oracle.) Analysts currently expect Oracle to earn 15 cents a share on revenue of $3.45 billion, according to Multex.com. Oracle's warning at the beginning of March set off a massive selloff among software stocks. Since then, many stocks have racked up double-digit rebounds. But analysts have been wary to start aggressively promoting software stocks again because they say fundamentals show little support for a rebound in spending any time soon. Roberts didn't give them any reason to think differently. "I think this is a few more quarters of keeping your head down and maximizing market-share gains until this whole thing clears up," Roberts said. "Customers are not indicating that they'll spend more in the second half than the first half. Customers aren't telling us anything. They're saying 'this is what we're willing to spend now, and when we get to the next stage, we'll let you know.' " He reiterated CFO Jeff Henley's views that the spending environment likely will not improve until 2002. "We don't think this is a one-quarter bounce." At the same time, Roberts didn't indicate that the company was slashing its prices to get its product out to its customers, as Deutsch Banc's Moore contends. "Pricing seems to be holding steady," Roberts said during the breakout session. "We haven't seen any major shifts." He did say that Oracle was continuing with its overall trend of bringing prices down, as he said it has been doing for several years. Who's right about what's happening with pricing at Oracle remains to be seen. But investors should remember that Oracle executives were bullishly touting their prospects just days before warning about their February shortfall, as well. Anyone up for a repeat?