Oracle reported revenue for the three months ended Aug. 31 fell 5%, to $5.05 billion. Analysts were expecting $5.2 billion of sales.

Net income rose 4% to $1.1 billion, or 22 cents a share, by Generally Accepted Accounting Principles (GAAP), but the company leaned heavily on support contracts and cost cutting to maintain profitability. The world’s second-largest software maker blamed the drop on declining overseas sales and a stronger U.S. dollar.

“Oracle’s results were impacted by the reduced value of foreign currencies when compared to U.S. dollars, reducing Q1 GAAP earnings by $0.02 per share,” the company said. “Without this impact, Oracle’s Q1 GAAP and non-GAAP earnings per share would have been $0.24 and $0.32, respectively.”

Oracle issued a more positive outlook for its fiscal second quarter, which ends in November. The summer is traditionally a slow period for the company which typically sees business pick up as its fiscal year moves forward. Additionally, the global economy is showing signs of improvement.

Oracle President Safra Catz said profit would be 35 cents to 36 cents per share in the second quarter. The company forecast revenue of about $5.6 billion to $5.8 billion for the period.

However, analysts remain skeptical that a fledgling economic recovery will necessarily lead to an increase in earnings.

“Just because people are starting to feel better about the economy doesn’t mean they’re ready to spend money on software,” said Partrick Walravens, an analyst at JMP Securities Inc. (NYSE: JMP), told BusinessWeek.

Sales of new software licenses – a key indicator of future revenue – fell 17% to $1.03 billion. Sales of database and middleware licenses plunged 21.5%. Middleware is software that helps different kinds of programs share information.

Additionally, Oracle’s $7.4 billion acquisition of Sun Microsystems has not gone as smoothly as planned.

Sun Setbacks

In April, Oracle announced it would takeover Sun in a move that gives it control of the database market as well as Sun’s coveted Java programming language. Java-based software is not operating system-dependent and runs on over 1 billion devices worldwide, from cell phones to supercomputers.

JMP’s Walravens believes the buyout is partly responsible for Oracle’s lackluster first-quarter earnings.

“There’s a ton of pre-merger planning you want to do before an acquisition, and [first-quarter sales decline] shows management were probably distracted by the Sun purchase,” he told Bloomberg in an interview. Walravens rates Oracle’s shares “market perform” and doesn’t own them.

Of course, the bigger threat to Oracle’s business is an ongoing antitrust investigation that has been launched by the European Commission (EC). While, the U.S. Justice Department approved the deal last month, the EC is worried that by acquiring Sun, Oracle will be too strong a presence in the database market.

“Databases are a key element of company IT systems,” said Neelie Kroes, The EC’s competition commissioner. “In the current economic context, all companies are looking for cost-effective IT solutions, and systems based on open-source software are increasingly emerging as viable alternatives to proprietary solutions. The Commission has to ensure that such alternatives would continue to be available.”

It’s possible that Oracle will have to spin off Sun’s MySQL open-source database to accommodate the EC. The commission has until January 19 to reach a verdict on the merger. But as the commission deliberates, former Sun customers are defecting to Oracle’s biggest competitors.

Hewlett-Packard Co. (Nasdaq: HPQ) says it signed deals with more than 100 Sun customers between February and July, BusinessWeek reported. Meanwhile, International Business Machines Corp. (NYSE: IBM) has lured 250 customers from Sun to its own computer systems since January, and is adding about two accounts a week, according to Inna Kuznetsova, IBM’s director of Linux strategy.

“The longer [the closing process] wears on, the more Sun’s business deteriorates, and the more market share IBM and Hewlett-Packard take away,” said Walravens.

Faced with an exodus of Sun clients, Oracle has taken some small steps to inspire more confidence in its fleeing customer base.

Earlier this month the company unveiled the Sun-Oracle Exadata Database Machine V2, a co-developed co-branded system that is meant to show that close engineering cooperation between the two companies is already underway.

The databased server is “a perfect example of what we can do together,” said Oracle’s Catz. “We continue to do what we can at arm’s length.

Oracle and Sun don’t have to be merged to make a product together. However, the first version of the machine was manufactured with Hewlett Packard.

“While the first version was built in partnership with H-P, this version leverages Sun’s hardware, clearly signaling the company’s intentions for Sun’s hardware division under the pending acquisition,” Tom Klasell, an analyst with Thomas Weisel Partners, wrote in a note to clients.

Oracle also took out an advertisement in The Wall Street Journal that said it plans to spend more money on Sun’s Solaris and SPARC development. That ad was meant to stem the tide of defections from Sun’s computer systems, as it made specific reference to increased competition with IBM. On its Web site, IBM describes Sun’s hardware business as “highly uncertain” and having an “undefined future.”

“I think someone at Oracle suddenly realized that Sun was bleeding so badly that what would be left when Oracle finally got control would be worth a small fraction of what they paid and no one would buy the hardware unit,” Rob Enderle, an independent analyst, told ComputerWorld.

The ad was a positive step for many Sun customers, but if Oracle is going to stop the bleeding it’s going to have to keep the pressure on until the merger is finally approved.

“A lot of our clients are nervous, and they want to know what’s going to happen,” Irene Griffith, Sun customer and owner of PetroSys Solutions Inc. in Houston, told ComputerWorld.

“IBM is very good at creating FUD” – fear, uncertainty and doubt, she said. Adding to her anxiety, Griffith said that she has been unsuccessful at getting information from Sun. “They’re not talking to us, they’re not reaching out to us,” she said.

Source: Oracle’s Future Clouded by Sun Takeover Complications

Stock investors will key next on earnings from tech giant Intel Corp.(Nasdaq: INTC) and banks including J.P. Morgan Chase & Co. (NYSE:JPM) for hints of what to expect in the third quarter — and how badly the recession hurt businesses in the second quarter.

The Standard & Poor’s 500 Index and Dow Jones Industrial Average delayed declined for the fourth straight week last week – the longest string of losses since stocks hit their low point in March – and investors are looking at the tech sector to squelch the ongoing decline. The Nasdaq Composite Index complost 2.47% in the week ended Friday.

Earnings reports this week from computer-chip giant Intel and several big banks – including JPMorgan Chase & Co. - could provide investors and economists some insights on where the U.S. economy appears to be headed. Earnings are expected to improve over the last quarter, even though they’ll still be down substantially on a year-over-year basis, Binky Chadha, chief U.S. equity strategist at Deutsche Bank AG (NYSE: DB), told MarketWatch.com,

“A necessary condition for the markets to go up from here is that earnings have to deliver, and we need a dissipation of the uncertainty about earnings,” Chadha said.

Year-over-year (annual) earnings comparisons are typically the financial yardstick that analysts use to assess whether the U.S. economy is growing or declining, meaning that “sequential” (quarter-to-quarter) earnings aren’t as crucial. This time around, however, the quarterly numbers may be viewed as important because they might give a better picture of the economy’s health.

During periods of extreme uncertainty, earnings estimates for companies tend to be widely dispersed – a function of investors not really knowing what to expect. That’s particularly true right now of banks and financial-services companies – and companies that derive most of their income from discretionary consumer spending.

And that makes sense, given that those are the two most uncertain portions of the U.S. economy – thanks to the ongoing global financial crisis and a jobless recovery that is badly crimping consumer confidence.

After mounting one of the strongest surges in history from their March lows, U.S. stocks have fallen back in recent weeks as investors dealt with a growing realization that the U.S. economy – and its counterparts abroad – won’t rebound with the speed or strength that had been widely expected. Further evidence of this came on July 2, when a U.S. payrolls report said the economy had lost more jobs than had been expected.

Against that backdrop, analysts and other investors are looking to the U.S. high-tech sector to pull the economy out its doldrums, Money Morning recently reported as part of its mid-year forecast series.

Thomson Reuters predicted that S&P 500 earnings will decline by 36% from last year’s levels, with financials (-53%) leading the way and techs (-24%) performing better than other sectors.  This should represent the eighth-straight quarterly decline, though analysts seem more concerned about the ensuing management comments on future operations, since that will shed some light on where the economy is headed.

When Intel reports tomorrow (Tuesday) analysts expect to see that /quotes/comstock/15*!intc/quotes/nls/intcsecond-quarter sales and earnings plunged, but some analysts believe demand may be returning to the battered market following a sharp slowdown in demand for high-tech goods. Internet-search juggernaut Google Inc. (Nasdaq: GOOG) will report on Thursday.

Other firms that report this week include Goldman Sachs Group Inc. (NYSE: GS), Bank of America Corp. (NYSE: BAC) and Citigroup Inc. (NYSE: C). JPMorgan reports Wednesday.

“The market is filled with folks who want to be optimistic, but simply cannot find enough genuine reasons to buy into the market,” Mike Gambale, an analyst at Informa Global Markets, told journalists. “We don’t expect impressive numbers across the board, but there will be some surprises, as there always are.”

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Market Matters

“New and improved” was the market mantra of the week. General Motors Corp. (OTC: GMGMQ) emerged from Chapter 11 bankruptcy protection after just over a month, eager to start anew as a “new and improved” automaker.

The Commodity Futures Trading Commission (CFTC) set its sights on “new and improved” trading regulations to limit excessive speculation within the energy and other commodities markets.  Some politicos are calling for a “new and improved” stimulus package to move the economy beyond the worst recession since the Great Depression.  A “new and improved” Public-Private Investment Program (PPIP) was scaled back dramatically as selected managers will begin purchasing toxic assets from ailing banks.  Unfortunately, as the week progressed, investors did not seem too keen on these “new and improved” developments.

Despite harsh protests by consumer groups and creditors, new GM reopened for business, “leaner and meaner” than ever.  A judge’s ruling allowed the once-bankrupt company to sell its performing assets to a new government-controlled entity (thanks to a $50 billion “investment” by taxpayers).

The government then shifted its attention to the regulatory world and announced plans to propose trading restrictions on certain commodities and increase the oversight over risky derivative products that have proven so detrimental to the financial markets.

The widely anticipated earnings season got started as Alcoa Inc. (NYSE: AA) reported another quarterly loss (with better-than-expected numbers) and oil giant Chevron Corp. (NYSE: CVX) warned that its results would be hindered by poor refinery operations and a weak dollar.

Investors have taken a more cautious approach heading into the new (but not improved) earnings season, particularly after last week’s pessimistic labor data.

Stocks fell throughout the week and fixed income again became beneficiary of safe-haven trades.  The tech-heavy Nasdaq now remains the only major domestic stock index “in the black” for the year.

Fickle energy traders suddenly turned bearish, as well, as the weak economic data implied that oil demand would be curtailed for the foreseeable future (or, at least, until 2013 according to Organization of the Petroleum Exporting Countries’ “2009 World Oil Outlook”).  Crude oil plunged beneath $59, or more than 10% during the week, on ongoing economic concerns,  although consumers ultimately may be recipients of cheaper gas prices.

Economically Speaking

Talk of a second stimulus surfaced this week, with several leaders – including U.S. Vice President Joe Biden and investing icon Warren Buffett – stating that the Obama administration’s $787 billion stimulus isn’t enough to jumpstart the U.S. economy.

On the other hand, Senate Majority Leader Harry Reid, D-Nev., believes the plan needs more time to work through the system as only 10% or so has even been distributed thus far.  Economists seem to agree with “Hank,” as the latest Wall Street Journal survey reported that over 80% of respondents feel that the country does not need a new round of stimulus in the current environment.  Still, the “Oracle of Omaha” painted an optimistic picture of the future by stating that the United States is “going  to come out of this better than ever, the best days of America lie ahead but not next week or next month.”

On the global front, the International Monetary Fund (IMF) revised – upward – its forecast of economic growth for 2010 and confirmed its belief that the developing economies in China and India will greatly contribute to the global rebound.

The May trade balance highlighted a slow week of data as the deficit declined to its lowest level since late 1999 and the weak labor market helped reduce consumer demand for foreign goods.

While initial claims for unemployment benefits fell to levels not seen since the beginning of the year, continuous claims (those folks who remain on the unemployment rolls for over a week) rose by another record amount.

In other words, no matter how one dissects the numbers, the labor picture looks dire and may not begin to improve for some time.  As such, the latest University of Michigan consumer sentiment reading dropped for the first time since February, another sign that the optimism of the past few months may be fading fast.

Weekly Economic Calendar

Source: Investors Looking to Tech to Pull U.S. Stocks – and the Economy – Out of Their Doldrums

• JPMorgan Chase & Co. (JPM) will eliminate 2,800 jobs at Washington Mutual through attrition, Bloomberg reported. In December, the company slashed 9,200 jobs at WaMu, which it bought for $1.9 billion last year.

• General Motors Corp. (GM) posted a loss of almost $31 billion in the fourth quarter, and said its auditors will likely doubt its viability. The company burned through $5 billion during the quarter, and warned that its pension plans were underfunded by $12.4 billion, Reuters reported.

• Hong Kong’s January exports sunk 21.8% from a year earlier, the biggest decline in 50 years. “It’s not just Hong Kong, the financial crisis is dragging down the whole of Asia,” Wang Qian, an economist at JPMorgan Chase & Co. in Hong Kong, told Bloomberg. “The trade environment is going to get worse.”

• Tech giant IBM (IBM) retained its full-year earnings outlook, saying that service contracts are grew in January. “Recognizing that it is still early in the quarter, the company expects double-digit growth in long term signings, and growth in total signings in first quarter 2009,” IBM said in a regulatory filing, Reuters reported.

• The number of Americans filing initial claims for unemployment insurance spiked the week ended Feb. 21, as 667,000 Americans filed initial jobless claims, up 36,000 from a revised 631,000 the previous week, the Labor Department reported.

• Oil prices jumped for a second straight day yesterday (Thursday) with light, sweet crude for April delivery jumping $2.72, or 6.4%, to settle at $45.22 a barrel on the New York Mercantile Exchange.

Global Investment News Briefs Friday, February 27, 2009