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Oracle posts drop in new-software sales, blames sales force

Oracle posts drop in new-software sales, shares fall

Ted S. Warre/A

Oracle Corp. forecast a return to growth in new-software sales this quarter, after blaming its rapidly expanding sales force for a severe miss in third-quarter revenue that drove its shares 8 per cent lower on Wednesday.

The world's No. 3 software maker projected a 1 per cent to 11 per cent rise in new software licenses and Internet-based subscriptions in the May quarter, following a 2 per cent slip in the February quarter that badly missed Wall Street's targets.

Executives ascribed the miss mainly to a poor sales force performance.

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"What we really saw was the lack of urgency we sometimes see in the sales force, as Q3 deals fall into Q4," chief financial officer Safra Catz told analysts on a conference call.

"Since we've been adding literally thousands of new sales reps around the world, the problem was largely sales execution, especially with the new reps as they ran out of runway in Q3."

Wall Street remains concerned about tepid spending by governments and corporations in an uncertain global environment, but Ms. Catz dismissed those fears.

Oracle is also facing greater competition in cloud or Internet-based software from the likes of International Business Machines Corp. and SAP AG and nimbler rivals like Salesforce Inc. and Workday Inc.

Oracle posted a 2 per cent drop in new-software sales and Internet-based software subscriptions to $2.3-billion (U.S.) in its fiscal third quarter, well below Wall Street's and its own projections. Investors scrutinize new software sales because they generate high-margin, long-term maintenance contracts and are an important barometer of future profit.

The company had forecast a 3 per cent to 13 percent jump in new software license and cloud subscription revenue.

"It doesn't help that the sequester deadline is on the last day of our quarter, and so that has a little bit of an impact here in North America, but not necessarily anywhere else," Ms. Catz said. "The economy has been as it is in Europe for a while."

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Oracle's revenue miss - about 4.4 per cent below the average forecast - was its worst since the November quarter of 2011, when it fell short of target by 4.5 per cent, according to Thomson Reuters data.

Overall, Oracle's revenue dipped 1 per cent to $9-billion, missing the $9.382-billion analysts had expected on average according to Thomson Reuters I/B/E/S.

Revenue from Oracle's troubled hardware division, which it acquired through the $5.6-billion purchase of Sun Microsystems in January, 2010, fell to $671-million from $869-million in the year-ago quarter. The company had predicted revenue would stay flat or fall 10 per cent from a year earlier.

The division's revenue has fallen every quarter since it closed the Sun deal. Chief executive Larry Ellison has said he expected hardware systems revenue to start growing in the fiscal fourth quarter, which begins March 1.

Some investors still worry that governments and corporations around the globe may postpone spending on technology projects because of uncertainty over the economy, particularly in Europe.

"Business sentiment and confidence is way down. People are more cautious right now in business than they are in the stock market. That's how we get very high valuation multiples on stocks, but businesses are pulling back," said Richard Williams, an analyst at Cross Research.

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GAAP net profit was unchanged at $2.5-billion. GAAP earnings per share were 52 cents, up 6 per cent from the year-ago period. Its adjusted earnings per share were 65 cents, shy of 66 cents expected by analysts.

Shares in the software company fell 8 per cent to $32.95 after hours, from a close of $35.765 on Nasdaq.

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