BYTE MIGHt

San Francisco, Sept. 15: Oracle Corp?s first-quarter earnings rose 16 per cent on strong demand for its flagship database programs, enabling the company to beat Wall Street?s expectations by a penny a share. ?The first quarter is always the most volatile,? said Henry You, Oracle?s chief financial officer. ?We think we came through fine.?

Oracle, based in Redwood Shores, California, said earnings for the quarter rose to $509 million, or 10 cents a share, from $440 million, or 8 cents a share, last year. Revenue increased 7 per cent, to $2.22 billion from $2.07 billion a year earlier. Analysts surveyed by Thomson Financial forecast earnings of 9 cents a share and revenue of $2.23 billion in the quarter.

Chairman Jeffrey Henley said in June that he expected first-quarter earnings of 9 cents a share and revenue of $2.19 billion to $2.26 billion.

In regular trading, before Oracle released its financial results, the company's shares closed at $10.55, down 7 cents, but in late trading on Tuesday Oracle shares rose as much as 37 cents.

But Oracle?s success in databases was marred by a steep decline in new sales of its business applications software, the segment of the market in which the company is locked in a bitter takeover battle for PeopleSoft Corp.

?The story is this is a database company,? said Charles Di Bona, an analyst at Sanford C. Bernstein. ?The application business can stumble and still it beats its numbers.?

Di Bona said Oracle's problems in the application business were part of the broader weakness in the software industry last quarter.

While Oracle?s revenue from new database licenses rose 18 per cent to $494 million in the quarter, new business software license fees fell 36 per cent, to $69 million. During the first quarter of last year, those fees were $107 million. Part of the problem was that a handful of deals the firm expected to close in the first quarter were pushed into the second.

By acquiring PeopleSoft, Oracle hopes to increase its software sales in a time when the software industry is consolidating. ?We continue to believe it is very important for Oracle to complete this transaction,? Henley said in a conference call with analysts.

Some analysts saw the decline in business software sales as an indication that the PeopleSoft battle had begun to have an impact on Oracle's customer relationships, even though those sales account for only a fraction of Oracle's overall revenue. A report released last week by Piper Jaffray showed that the opinions of Oracle among information technology buyers was at a 12-year low as a result of its bid for PeopleSoft.

?I think it?s clearly a concern,? said Tad Piper, an analyst with Piper Jaffray. Software sales are a critical part of Oracle?s strategy to get more business from its database customers.

But Oracle executives played down the decline in the software category, calling it an aberration. ?I urge people not to get misled by percentage changes,? You said. ?It's not a serious situation, as we expect growth for the year." You said he did not think that the PeopleSoft situation was having much impact on Oracle's sales.

Oracle's earnings release came just days after a federal judge here ruled last Thursday that Oracle could proceed with its $7.7 billion hostile bid for PeopleSoft, following a month-long trial that ended on July 20. The Justice department, which had sued to block the deal, contending it violated antitrust laws, has 60 days to appeal the decision. Antitrust lawyers expect the Justice department to announce whether it will appeal by the end of next week, after the judge agreed to stay his decision for 10 days.

During the first quarter, when the trial was under way, Oracle spent $29 million on legal fees, bringing the total to $89 million since it announced its bid 15 months ago.

The European Commission is still reviewing the case having interrupted its investigation twice as it waited for additional information from Oracle. During the American trial, the Justice department argued that the merger would leave SAP, the market leader, and a combined Oracle-PeopleSoft with control of the market.

The European Commission has the same concerns, particularly given that SAP has an even wider lead in Europe.

?We continue to be in a waiting period as we haven't cleared yet," said Safra A. Catz, co-president of Oracle, in the call to analysts. ?There isn?t anything imminent." Catz said the next step for Oracle, while it waits for a decision from the European Commission, is to pursue its case against PeopleSoft in Delaware Chancery Court. In that trial, scheduled to start October 4, Oracle is trying to force PeopleSoft to remove its ?poison pill? provision, she said.

Looking ahead, You said he was comfortable with analysts' forecasts of about 13 cents a share for the second quarter. He told analysts the company expected revenue of $2.58 billion to $2.66 billion, up 3 per cent to 7 per cent over the second quarter last year.

Chairman Henley said, ?Our sense is that business optimism is a little more cautious, but business is still decent."