Oracle Warns Profits Will Slip 1%

Oracle, second only to Microsoft in the software market, yesterday suffered a share price fall of up to 19% after warning that it would miss its profit targets for the third quarter.

The software group said that a slowdown in Asia was likely to result in a 1% drop in earnings when they are reported later this month. The estimate from the company, based in Redwood, California, was put out late on Friday night after the close of the markets.

The warning delivered a blow to the still fragile IT market, which had been seeing some signs of recovery.

Sun Microsystems will provide an update on the market on Thursday and Merrill Lynch, the investment bank, said it expects it to report further sluggish demand. Analyst Steve Milunovich said he anticipated further job cuts, perhaps accompanied by another profit warning.

"Checks indicate that US business is weak, especially at the high end," he said. "We are nervous about the June quarter as well."

Analysts were nevertheless surprised by the Oracle announcement. As recently as January 30, Oracle's chief financial officer, Jeff Henley, said he was confident that the company would meet current forecasts after missing targets in the second quarter.

Mr Henley said on Friday that growth rates during the third quarter were similar to those in the second. Merrill Lynch has revised full year forecasts for Oracle downwards for 2002 and 2003.

In a brief statement, Oracle chairman and chief executive Larry Ellison said: "While software sales in the US and Europe increased slightly over the second quarter, that increase was not enough to offset a slowdown in Asia."

He attempted to inject an upbeat note and said the recent signs of an improving US economy would bolster Oracle sales. "As companies become more confident in the economy, we expect that capital spending will increase and our business will improve - first in the US and then around the world."

Sales have been particularly tough in Japan. In the second quarter, sales of new software licences in Asia fell 19% to $178m.