Updated from 6:11 p.m. EDT

Oracle

(ORCL) - Get Report

on Tuesday reported fourth-quarter earnings in line with Wall Street estimates and reported revenue that beat analyst forecasts, but said current quarter earnings would be below expectations.

The world's second-largest software company predicted first-quarter earnings will come in at least 2 cents lower than the consensus estimate but forecast modest total revenue growth in the full year, reversing a downward trend.

"There will be positive improvement primarily in the second half, which will lift the full year," CFO Jeff Henley said in a post-close conference call. Henley said Redwood Shores, Calif.-based Oracle expects first-quarter license revenue to decline 15% to 25% from a year ago, bringing earnings to 7 cents a share, compared with 9 cents a share a year ago. If the license revenue decline is at the high-end of that range, though, earnings could fall to as low as 6 cents a share, Henley said. He said visibility "remains very limited" and did not provide guidance for the full year.

Analysts were expecting the company to earn 9 cents a share on revenue of $2.2 billion for its 2003 fiscal first quarter, which started at the beginning of June, and 42 cents a share, with sales of $10.0 billion for fiscal year 2003, which ends next May, according to Thomson Financial/First Call.

" I think the reality is that the IT environment is not deteriorating," concluded Charlie Di Bona, an analyst with Sanford C. Bernstein, who has a market perform on Oracle. "It's bad; it's not deteriorating." His firm doesn't do investment banking business.

Oracle said it earned $655.9 million, or 12 cents a share, on total revenue of $2.8 billion in the fourth quarter. A year ago, Oracle earned $854.9 million in net income, or 15 cents a share, on $3.3 billion in revenue.

Excluding an impairment charge related to Oracle's investment in

Liberate Technologies

, Oracle reported fourth-quarter net income of $760 million, or 14 cents a share.

Sequentially, revenue in the fourth quarter, historically when the company does the most business, rose 27% from the third quarter. It dropped 15% year over year.

Analysts, who had reduced estimates in the past several weeks, were expecting earnings of 12 cents a share on $2.5 billion in revenue for the quarter that ended May 31, according to Thomson Financial/First Call.

In March the company said it expected to earn 13 to 14 cents a share, with license revenue ranging between $1.16 billion and $1.24 billion, in the fourth quarter.

Software license revenue fell into that range, totaling $1.17 billion, down 29% from last year's $1.66 billion. Most analysts estimated license revenue would range between $950 million and $1 billion.

"It is their Q4, and as management has put it multiple times, it's really hard to recall when they've missed a Q4," said Credit Suisse First Boston analyst Brent Thill. But Thill cautioned against drawing any conclusions for the rest of the software sector given that the quarter is Oracle's biggest, while the majority of the industry is in its second quarter.

"Expectations were low," Thill added. "Obviously the overall environment is still very difficult." Thill has a buy rating on Oracle, and his firm hasn't done any banking with the company.

A large part of Oracle's performance stemmed from tight control of costs. Oracle cut fourth-quarter operating costs by $447.8 million, or 22.4%, from the same period a year ago. The company's operating margin rose to 44.2% in the fourth-quarter, from 39.4% in the year-ago period.

Bill Schaff, portfolio manager of the Berger Information Technology Fund, noted that the cost of services as a percentage of services revenue declined to 35.4% in the fourth-quarter from 45.6% in the same period a year earlier.

"That is huge when

services represents 57.7% of your revenue," said Schaff, who owns Oracle shares. He noted that Oracle has always had a fairly large bonus program and said the numbers suggest that bonuses were severely stripped back this year. "It sure as hell looks like they just said 'no,'" he said.

On the conference call, Henley confirmed Oracle's expenses have dropped because of a decline in bonuses and commissions has accompanied softer license revenue. He said such variable compensation should go up as license revenue become more robust.

Total database revenue, representing Oracle's core business, came in at $2 billion, down from $2.4 billion during the same period a year ago. New database sales declined 19% year over year. Despite denials from Oracle, market analysts have reported that

IBM

(IBM) - Get Report

and

Microsoft

(MSFT) - Get Report

have scored some successes in their fight against Oracle for the database market.

Last month Gartner Dataquest reported that IBM brought in the most new database-software license revenue in 2001, nabbing 34.6% of the market to Oracle's 32%. Other surveys have shown Oracle losing share but holding on to its lead. CEO Larry Ellison dedicated his comments on the post-close conference call to debunking the Gartner market share study, noting that surveys of CIOs found Oracle boasts the highest loyalty rate and its market share totals as much as 59% compared to 13% for IBM.

Revenue from Oracle's applications business, which has stumbled because of bugs and other glitches, totaled $776.5 million, compared with $850.9 million last year. New application software sales fell to $385.3 million from $461.3 million a year ago.

Ellison also denied rumors that Oracle is looking for a new head of sales or COO. "The rumors are nonsense," he said.

But that comment may do little to comfort some on Wall Street who would feel more comfortable with an obvious heir-apparent to the brash CEO.

Shares of Oracle fell 27 cents, or 2.9%, to close at $8.93. After the company announced fourth-quarter results, shares bounced past $10 but then fell to $9.39 in recent aftermarket trading.