PeopleSoft misses lowered revenue forecast

PeopleSoft fell short of its reduced revenue targets in the second quarter, a result the company blamed on hoopla surrounding the ongoing legal battle between the U.S. Department of Justice and Oracle over Oracle's attempt to acquire PeopleSoft.

PeopleSoft warned earlier this month that revenue would be lower than it had previously forecast. The company said it expected revenue of between US$655 million and US$665 million, but on Tuesday it released a financial report showing revenue of US$647.3 million for the quarter.

PeopleSoft's revenue rose significantly over its US$497.4 million total in last year's second quarter, but the results aren't directly comparable because PeopleSoft purchased J.D. Edwards & Co. last July. Revenue from J.D. Edwards began contributing to PeopleSoft's bottom line in last year's third quarter.

PeopleSoft's net income fell 70 percent, from US$36.5 million in last year's second quarter to US$11 million in this year's, which ended June 30. Earnings per share were US$0.03, down from US$0.11 a year earlier. Excluding various charges related to the J.D. Edwards acquisition and costs associated with the Oracle takeover battle, PeopleSoft had a smaller net income drop, from US$54 million in last year's second quarter to US$51 million in this year's.

Chief Executive Officer Craig Conway struck a defiant note on PeopleSoft's conference call with analysts, praising the company's performance amid what he sees as Oracle's successful attempt to disturb PeopleSoft's business.

PeopleSoft has a long list of delayed and lost deals that it attributes directly to the uncertainty around Oracle's bid, Conway said -- a list the company plans to use as evidence in its next courtroom showdown with Oracle, an Alameda County, California, lawsuit charging Oracle with libel and unfair competition that will commence later this year.

The media attention surrounding the DOJ/Oracle confrontation made closing deals nearly impossible in June, the end of PeopleSoft's second quarter, according to Conway and other executives. Half of PeopleSoft's US$130 million in license fees for the quarter closed during the quarter's last two days, they said.

"(The DOJ/Oracle trial) was the elephant in the room in every selling situation with every customer," Conway said.

The DOJ trial also prompted customers to negotiate smaller deals at sharper discounts, executives said, thanks to information made public during the trial.

"We had customers that were moving ahead armed with all of our discounting forms," Conway said. "They were in a position to command -- or demand -- higher levels of discounts."

PeopleSoft won't release guidance on its third-quarter sales expectations until after Judge Vaughn Walker issues a decision on the DOJ/Oracle case. PeopleSoft executives professed optimism that the ruling, expected within two months, will favor the DOJ's argument that Oracle should be barred from buying PeopleSoft. Several analysts asked what PeopleSoft expects if the judge sides with Oracle, but Conway and Chief Financial Officer Kevin Parker refused to speculate.

PeopleSoft was one of more than a dozen software companies to warn of sales shortfalls during the quarter, and Conway cited a blizzard of other factors that he saw contributing to slower-than-expected sales, including the looming U.S. elections, the rising price of oil, the war in Iraq, and distraction of the new Sarbanes-Oxley compliance regulations that public companies are preparing to meet. But those factors, while they affected the software buying market, were minor issues for PeopleSoft compared to the Oracle bid, he said.

Conway also brushed off the strong quarterly results from PeopleSoft rival SAP AG, which reported surging sales in the U.S. Those sales are coming at PeopleSoft's expense, from customers spooked by the Oracle threat, Conway said.

"Anybody that wants to give SAP credit for anything other than just showing up is giving them too much credit," he said.

Shares of PeopleSoft (PSFT) dropped slightly in after-hours trading, falling 1 percent to US$17.20, after ending the day up 1 percent, at US$17.32, in regular trading on the Nasdaq exchange.

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