Oracle stock plunge doesn't mean that technology's days are over

The Outlook

December 14, 1997|By Shanon D. Murray and Mark Ribbing

SHARES OF Oracle Corp. took a beating last week after the maker of database software reported second-quarter earnings far short of estimates.

Oracle executives attributed the shortfall primarily to financial turmoil in Asian and Pacific markets, which had been a stronghold for the company, and to currency fluctuations. Analysts, however, said they had already built the Asian weakness into their estimates. The earnings report, they said, showed a significant slowing of growth in Oracle's core database business and in its applications business.

Oracle, the second biggest software company overall, behind Microsoft Corp., had an estimated 53 percent of the database market last year and annual sales of about $6 billion.

Does Oracle's faltering foreshadow more surprises from technology companies. Is the technology boom wilting? Or is this just a bump on the road for Oracle?

James Pickrel

Analyst, Hambrecht & Quist, San Francisco

There have been a number of disappointments in technology, especially in the disc drive industry.

Look at Quantum, SeaGate and Motorola. If it was only Oracle, I would say that's not enough of an indicator that something is going wrong.

There are two things going on. The market is getting saturated with technology products, and there are economic problems in southeast Asia. But I don't see any trends that say the world is becoming less dependent on technology.

There are increasing signals that there will be a pause in technology and in general business conditions.

Bruce Raabe

Senior equity analyst, Collins & Co., Larskspur, Calif.

Oracle wasn't the first to show signs of trouble, and there may be more to come in certain technology sectors, like those with exposure to the Asian market and those that do a lot of exporting and then try to translate their earnings into dollars. But many companies have outstanding long-term prospects.

Oracle is having a rough moment now, but, because it dominates the database-management sector, we can expect to see them recover.

It may take a few quarters, but we expect the stock prices to be even higher than before.

Art Russell

Technology analyst, Edward Jones, St. Louis

I believe this does foreshadow some surprises for tech companies.

In Oracle's case, there are a number of company-specific problems in addition to Asia, though Asia's troubles did contribute.

There's weakness in the telecommunications sector. Twenty percent of Oracle's overall revenues come from that sector.

Most of the large telecommunications companies use Oracle databases and applications. That area is reaching saturation.

The quarter from last year that they were comparing to included huge telecom deals that didn't happen this year.

In addition, we knew the market for database software is slowing, and it seems to be slowing more than we thought.

Asia's a temporary phenomenon. It's something we're all going to have to deal with.

For investors, if you have a holding period of two years or longer, I think it's an attractive time to get into the stock. If you have a shorter holding period, I don't think it's going to snap back quite that quickly.

The biggest risk in all of this is slowing demand since worldwide economies are so interconnected these days.

Melissa Eisenstat

Equity analyst, CIBC Oppenheimer Corp., New York

I think there will be more stumbles in technology, whether it's in the next three months or two years, because of the same issues Oracle's dealing with.

Oracle acts like Asia is the primary reason for their problems, but there are other reasons we can delve into. I believe the health of the database software market is an issue. I felt thedatabase software growth assumptions were too high, and that's what we've seen.

I think the high end of that market, where Oracle's been extremely successful, has become somewhat saturated.

The growth is in the middle part of the market. That's going to hurt vendors who have been focusing more on the high end. The other high-end database companies are cooked.

I think there could be a pullback in some of the price-earnings multiples you've seen in technology.

I think the outlook, though, is that there's still a lot of growth left in the middle part of the market.

I'm still bullish on technology as a whole. I like Oracle's long-term outlook. They're a great company. They're going to see some slowdown, but they're still going to be a very formidable figure in the software industry.

Pub Date: 12/14/97

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