Oracle is finding the software market to be in greater turmoil than it believed only two weeks ago - and things could get worse before they get better.
The database giant reported third-quarter sales and earnings last week that came close to the projections it offered March 1, the day after the quarter closed. However, the company also warned that software sales and earnings growth could be even more lacklustre in the fourth quarter. In the meantime, Oracle will be forced to lay off employees to cut costs, chief executive officer Larry Ellison said in a conference call.
"With the exception of R&D, Oracle should be reducing headcount in every area," he said.
On March 1, Oracle had projected revenue growth of 9 per cent and earnings of 10 US cents a share. The database maker said that earnings hit the target and that revenues grew 12 per cent, but those numbers don't tell the whole story.
In December, Oracle said growth in database sales would be about 20 per cent and growth in sales of applications would be 75-100 per cent.
On March 1, those projections were revised. The company said then that database sales would be flat or slightly lower than last year and that sales of applications software were expected to rise only 50 per cent.
Last week the company reported that applications sales came in at 25 per cent, while database revenue climbed 6 per cent.
"If [customers] didn't need the software, they didn't buy," Ellison said. "People delayed decisions . . . even if they could delay for 90 days. Deals that were large became smaller."
More importantly, Oracle said that fourth-quarter earnings would be flat at 15 cents a share and that database sales will not grow from last year. Applications sales are now expected to rise only 15-30 per cent.
In the third quarter, Oracle's sales in Europe were softer than expected and sales in the US were slowed by the weakening economy. The company's business from dot-coms also fell off sharply.
For now, Oracle is assuming the economy will get worse. "What the economy does, we'll do," Ellison said. "We are being cautious."