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March 22, 2005

PeopleSoft-Oracle integration smoothes out lumps

Oracle's absorption of PeopleSoft is going "ahead of schedule", but caused a dip in profit and lumpy application sales caused the firm to narrowly miss analysts' revenue estimates in the company's fiscal third quarter.

By CBR Staff Writer

The software giant reported GAAP income for the three months to February 28 down 15% at $540m. That figure included a $249m charge related to the PeopleSoft deal. Without charges, the profit was up 25% at $814m.

Revenue was up 18% at $2.95bn, helped out by market share gains in the core databases business but slowed by a decline in its own pre-PeopleSoft applications new license revenue.

The company saw $152m in new applications license revenue, up 8% versus $140m in the equivalent year-ago quarter, but $31m of that came from PeopleSoft. CEO Larry Ellison described the apps business as lumpy.

Ellison said that PeopleSoft had trounced estimates in its last independent quarter, as an uncertain sales force pushed through their sales backlog. PeopleSoft had bled its pipeline dry immediately before the merger, Ellison said.

I think it’s going to take a couple of quarters to rebuild that pipeline. It was an absolute blowout for them, he said. Sales there have been a little light as a result of that and the modest distraction of being merged with Oracle’s sales force, he said.

In the core database business, Oracle said new licenses were up 12% to $795m. Ellison went as far as to say that the company is taking market share from rivals including IBM and Microsoft.

We are gaining share and we’re taking that share from IBM, he said, pointing to recent IDC numbers that show Oracle’s database market share going from 40.3% to 41.3% over 12 months, while IBM’s decreased 31.8% to 30.6%.

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At the high end there’s a gradual migration off [IBM] mainframes, at the low end there’s a gradual migration off Windows onto Linux, Ellison said. This means we’ll be making more and more gains at both ends of the market.

Co-president and acting CFO Safra Catz said that the integration of PeopleSoft is ahead of plan, with sales training in progress and the merger paperwork for international subsidiaries expected to be done within a month.

She added that people should not read too much into the departure of CFO Harry You, who abruptly quit to head BearingPoint last week, as Oracle was not only preparing its financial report, but securing its acquisition of Retek.

Quite simply, Harry received an offer he couldn’t refuse, Catz said. BearingPoint has some urgent financial work to take care of, she said. The timing of his departure was unfortunate, it was also understandable given the circumstances.

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