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Will six straight quarters of year-over-year shrinking earnings and revenue be the end of the bad news for


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? Doesn't look like it.

When the world's second-largest software maker reports earnings Wednesday for the quarter ended Nov. 30, investors likely will learn that Oracle has met expectations -- and delivered yet another lackluster quarter. The consensus forecast calls for the Redwood Shores, Calif.-based database giant to report that earnings fell 20% to 8 cents a share, from a profit of $549 million, or 10 cents a share a year ago.

Moreover, several analysts issued downbeat reports about Oracle the eve of the announcement, and in one case, downgraded the entire enterprise software sector.

"Although we believe Oracle has a strong database product, the recent strength in Oracle's stock price is not justified by current fundamentals," wrote Michael Marzolf, senior analyst with U.S. Bancorp Piper Jaffray. "We would be buyers of the stock closer to $10," he continued. Oracle closed down 28 cents, or 2.5%, to $11.02 a share Wednesday, 43% higher than its closing price of $7.70 on Oct. 7. Marzolf's firm has done banking for Oracle.

Richard Williams of Summit Analytic Partners, a small research house in New Jersey, said the recent run-up of software stocks might reverse itself rather quickly. "We are cautioning our customers that current valuations in the software group may be unsustainable over the next six weeks until 4Q02 earrings reports are out. The sharp run-up in prices since October lows have built in expectations that are unrealistically optimistic given current conditions in the IT spending environment," he wrote in a note. Summit has no banking relationship with Oracle.

Another early warning sign: The negative preannouncement from


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earlier this month, in which the vendor of supply chain software warned that its third-quarter loss would be greater than expected as revenue continued to decline. Manugistics CEO Greg Owens said that software license fees for the quarter ended Nov. 30 would fall to as low as $14 million, a drop of about 37% from the previous quarter.

Are Williams and Marzolf too negative? Look carefully at Wednesday's announcement for some solid clues:

Overall license revenues. Management guided for a year-over-year decline of 10% to 15%, implying $690 million to $735 million, according to Eric Upin of Wells Fargo Securities. If the actual numbers are much lower (Upin thinks they may be as low as $606 million), watch out.

In particular, see if revenues from application software, a growing area that Oracle does not dominate and thus presents a significant opportunity, are growing, or at least expected by management to grow.

Databases remain Oracle's core business. Upin predicts a year-over-year drop of 27% in new database licenses, but notes that management expects Oracle to return to positive single-digit growth in the second half of the 2003 fiscal year.

Nevertheless, there are factors that point toward possible improvement.

Trip Chowdhry, an analyst with Midwest Research Securities, says the technology downturn has forced system integrators and consultants to cut hourly rates, which in turn encourages IT managers to complete Oracle implementations. Until implementations are complete, new sales are very difficult to make. Chowdhry's firm has no banking relationship with Oracle.

Chowdhry also maintains that the company has finally gotten the bugs out of the much-criticized Oracle 11i database, and says Oracle is gaining market share by selling products that work with the Linux operating system running on


-powered servers. Short term, he is predicting a slight improvement (an additional penny) in earnings next quarter. "If they execute the Lintel strategy well, longer term could be much stronger," he said.

Wells Fargo's Upin, who also expects earnings of 9 cents next quarter, points to three factors that could make Oracle's earnings outlook a lot brighter. They include:

A faster-than-expected IT spending rebound.

Oracle delivers double-digit revenue growth.

Oracle is able to expand margins beyond his projection of 34% to 36%.

Stay tuned.