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In re Oracle Corp. Derivative Litigation11/24/2004
simply disappeared?" Roberts asked his subordinate Classik for his thoughts. Classik replied:
NET - lost to competition 5%, firm q4 projects 25%, delayed until economic or business conditions are clearer 70%. We had 5 POs cut that Presidents pulled until April as they wanted to see what their q1 would look like. The uncertainty of their business and outlooks for the year has caused many clients to delay until they better understand what directions 2001 will take. We can't commit this 70% as April results and the business climate will have to determine.
In another e-mail that day, Henley implied that Oracle still had a chance to meet its market projections for earnings because of improved expense reductions. By the next day, that hope was dashed as Minton informed him that Oracle's so-called "Big Deals" estimate had dropped "From 40% growth [over 3Q 00] to 25% in one day" - i.e., from February 26 until February 27. Henley was not as shocked as Minton, informing her "like I said to Larry it can change quickly so this isn't a surprise to me."
On February 27 and 28, Minton traded e-mails with Sarah Kopp of Oracle's OIS unit regarding OIS's likely revenues. In the course of those e-mails, OIS reduced its estimates for quarterly revenues by approximately $100 million in a day and a half, as deals slipped into the future or away altogether.
By the last day of the quarter, the Best Estimate in the final Upside Report for 3Q 01 estimated earnings at 10.07 cents per share, with License Revenue growth of only 7%. That represented a major decline from the previous day's Upside Report which had a Best Estimate of earnings at 10.9 cents and License Revenue growth of 10%, with total revenues over $115 million in excess of the succeeding day's Upside Report.
R. The Market Reacts Negatively To Oracle's 3Q 01 Performance
On March 1, 2001, Oracle previewed that its final performance in 3Q 01 would not meet the market estimates. It announced that it would likely earn only 10 cents per share on license revenue growth of 2%, compared to 12 cents per share and about 25% license revenue growth in the Market Estimates. In the earnings press release, Ellison attributed the results to customer decisions to "delay their IT spending based on the economic slowdown in the United States. . . . The problem is the U.S. economy."
Ellison and Henley held a conference call with analysts that same day. In that call, both Ellison and Henley attributed the failure to meet the Market Estimates to a decline in business from dot.coms and, most important, to a general economic slowdown that resulted in a large number of deals getting deferred at the very end of the quarter. Henley indicated on the call that Oracle had felt "very good about our quarter" as late as Friday February 23, 2001 but that they started to "see a few cracks" that day. By the end of the quarter, a "significant amount of deals . . . were deferred."
Henley was participating on a cell phone and thus Ellison fielded most of the questions. At one point, Morgan Stanley analyst Charles Phillips asked him whether Oracle was ahead of where it expected to be entering into February. Ellison answered yes and indicated that " e were well ahead of our numbers at the end of January. And the pipeline looked terrific, you know, going into February."
This statement was erroneous. Although Oracle's quarter-to-date internal forecasts (including the Pipeline) as of the end of January showed that the company would likely come close to, if not meet, the Market Estimates, they did not show results "well ahead" of expectations. In general, however, what Ellison stressed was the large number of
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