SAN FRANCISCO --

Oracle's

(ORCL) - Get Report

stock tumbled in after-hours trading after the company reported what on the surface looked like positive third-quarter results.

Shares fell as low as 30 7/8 -- from a New York close of 36 7/8 -- apparently on concerns about the sluggish growth of the company's database license revenues.

The company posted net income of $293 million, or 20 cents per share, in the third quarter ended Feb. 28. That is up from $215 million, or 14 cents, a year ago, and slightly above

First Call's

consensus estimate of 19 cents. Total revenues were $2.1 billion, up 19% from the same quarter a year ago.

Oracle didn't break down license revenue for the quarter according to its database and applications business, but an analyst who asked not to be named says the growth of both was "disappointing." Database license revenues grew only 10% year-over-year, compared with the 15% many on Wall Street expected.

Applications license revenue rose only 5% from a year ago, significantly below expectations of about 20%, the analyst says.

Oracle beat the Street's earnings estimates largely by a $9 million sequential gain in other income, which came mostly from an initial public offering in Japan. Oracle also cut its sales and marketing expenses to $567,000 this quarter, down 4% from what the company spent last quarter and flat with spending the same quarter a year ago.

Cutting sales and marketing expenses is "very unusual when revenue grows," the analyst says, adding that it "gives less credibility to the EPS number and makes people worried that the company is not investing for future growth."

The Redwood Shores, Calif.-based company said growth continued in the Americas, Europe, the Middle East and Africa and noted "significant improvement in Asia Pacific." The company said revenue increased 17% from a year ago in the Americas, 20% in Europe, Africa and the Middle East and 25% in Asia Pacific.

The following story appeared at 7 a.m., Thursday.

Oracle Still Has Something to Prove

Another earnings season, another gauntlet thrown down before

Oracle

(ORCL) - Get Report

. Wall Street is once again demanding that the software giant prove it's not just a database company anymore.

Guarding against a potential slowdown in database software, Oracle has pushed during the past year to diversify into other areas, notably applications software. A 19% year-on-year growth in applications revenues during the second quarter gave some evidence. But now investors want more.

Thursday afternoon, when Oracle posts its earnings for the third quarter ended Feb. 28, analysts expect database sales to rise at least 15% year-on-year, strong enough for the company to match -- if not beat -- estimates. (The

First Call

consensus forecasts 19 cents a share, up from 14 cents a share in the same quarter a year ago.) But that may not be enough to please investors.

"While database business can certainly offset a shortfall in applications license revenue, a return to greater database concentration would concern investors and command a lower multiple,"

Credit Suisse First Boston

analyst Wendell Laidley says. A roughly 74% rally in Oracle's stock since its last earnings report has left its P/E at 51, above the P/E of 36 for the

S&P 500

.

Laidley says Oracle's applications-license revenue, which makes up about 27% of the company's total revenue, could grow at a rate below the 20% Wall Street has been expecting this quarter. CS First Boston has no underwriting relationship with Oracle.

Much of Oracle's applications business lies in the market for back-office programming known as enterprise resource planning, or ERP, software. ERP leaders such as

SAP

(SAP) - Get Report

and

J.D. Edwards

(JDEC)

have suffered slowdowns in their own business as companies devote attention to fixing Y2K bugs rather than other software needs.

"ERP business is shaky right now because of the Y2K problems, so it's not an Oracle-specific problem," says Tom Hensel, analyst at

Everen Securities

, which has not underwritten for Oracle. But it remains an Oracle problem nonetheless.

Hensel also forecasts applications license revenue will grow less than 20% this quarter. "Oracle's ERP business was lumpy the last five quarters and included two consecutive quarters of flat year-over-year growth," he says. "It hasn't to date shown any real trend."

One buy-side analyst, whose firm owns "a small amount" of Oracle shares, also says he is wary of the rally in Oracle's stock price continuing. Many fund managers say they have been surprised by the rally, and that there remain too many uncertainties involved with Oracle's future business for them to buy aggressively now. Oracle closed at 37 15/16 Wednesday, off the record high of just above 41 it hit in early February.

"Given our belief that Oracle's stock price currently reflects the 'best case' scenario, an applications shortfall would be received negatively," Laidley says.