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In re Oracle Corp. Derivative Litigation11/24/2004
or would fall materially short of them. As important, there is no evidence that Ellison's last trades in January 2001 were influenced in any manner by the January 29 Upside Report and it would be odd if they were, as the Best Estimate in that Report still had Oracle projected to meet the Market Estimates more or less exactly. In this respect, it is important to note that the unit-level forecasts made by NAS, OPI, and OSI remained unchanged from their December 11, 2000 levels, although by this time Minton was applying a negative adjustment to the OSI forecast.
In his deposition, Henley acknowledged that the January 29 Upside Report was of concern to him. This was not because it contained information that indicated that Oracle would surely miss its Market Estimates, but because for the first time in his view, it appeared that Oracle would face "more of a horse race" to beat those Estimates. Henley, however, noted that it was not unusual for Oracle to be in this situation, as it had experienced several quarters when its Best Estimate suggested a horse race but when Oracle later met or exceeded market expectations.
N. The Immediate Post-Sales Period Financial Estimates
By February 1, 2001, all the trades challenged in this case were completed. On February 5, an Upside Report as well as the first Pipeline Report since January 15, 2001 were issued. The February 5 Upside Report's Best Estimate for earnings was now only 11.29 cents per share and for license revenue growth was 20%, both figures that were below the Market Estimates. The February Pipeline Report, meanwhile, showed a reduction from 34% to 32% from the January 15 Pipeline Report. For the first time, the NAS, OSI, and OPI unit- level forecasts were reduced below December 11, 2000 levels.
Consistent with this softening, the February 8 Flash Report indicated that Oracle's internal forecasts were running 8% behind where they needed to be to generate the 23% license revenue growth the Report indicated market analysts now expected. At the same time, the Flash Report indicated that Oracle had achieved 25% license revenue growth in the quarter to date ("QTD") - i.e., in December and January - and that "QTD license results represent 36% of the total forecast for Q3 FY 01. In FY 00 and FY 99, January QTD represented 33% and 38%, respectively, of the quarter total." As with the earlier January Flash Report, the February Flash Report made clear that absent the Covisint transaction, Oracle's overall QTD revenue growth would have been only 8% rather than 25% and that the OPI unit (that made the Covisint sale) would have had license revenue growth of negative 63%.
None of this information, however, was provided to Ellison until after his trading activity was already completed.
O. A Key Analyst Issues An Updated Report
On The Prospects For Oracle's 3Q 01
The plaintiffs place weight on a February 9, 2001 report put out by Chuck Phillips, who was then a senior analyst at Morgan Stanley. The report was entitled "Getting Through Q3 in Good Shape." In that report, Phillips opined that Oracle's business strategy of focusing on delivering integrated enterprise software products that helped organizations meet all their computing needs was a sound one, but noted that Oracle, like other companies, faced a drop-off in revenue from dot.com customers, many of whom had not survived 2000. As a result, Phillips thought that Oracle would suffer a "temporary dip in database license growth." Although Phillips' "earning number this quarter remain unchanged at $0.12 per share," he reduced his license revenue growth by $40 million, to a figure of 18.5% growth over 3Q 00 levels. While his earnin
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