Lawsuit Heightens Oracle's Woes

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Local 144 Nursing Home Pension Fund, an institutional investor, filed a complaint against Oracle Corp. and Larry Ellison, the company's CEO.

The lawsuit alleges that Oracle, one of the top five customer relationship management software vendors, falsely hyped its sales prospects.

The lawsuit also challenges Oracle's claim that it saved $1 billion by implementing its own 11i software, saying the software was, in reality, riddled with bugs and that Oracle's savings came from 2,000 job cuts. The lawsuit alleges that Ellison knew the software was "fraught with massive technical problems including giant gaps in its CRM modules, and required expensive systems integration work to implement."

Local 144 is represented by San Diego law firm Milberg Weiss Bershad Hynes & Lerach.

Oracle has not reviewed the lawsuit but denies the allegations.

"The allegations made in the press release are entirely without merit and will be defended vigorously," said Jennifer Glass, a spokeswoman for Oracle.

Oracle's 11i software allows companies to run their entire worldwide operations from a central online site, in an effort to lower costs and provide unified enterprise information. The software is undergoing its third major revision and has received about 5,000 patches since May, according to the Oracle Applications Users' Group.

"This is typical of Oracle in its release process for its software," said Laurie Orlov, an analyst at Forrester Research, Cambridge, MA. "It historically has released early, prior to all of the bugs being worked out, and compensated for it by forcing users to place tech support calls to request patch after patch in order to get their software to function properly."

Orlov said users probably would be happier to wait longer for software that worked as opposed to early software releases that do not work.

"11i was released very late, so I do think that Oracle is caught between a rock and a hard place," Orlov said.

Oracle will report third-quarter results on March 15. Last week the company warned it would snag earnings per share of 10 cents, below Wall Street estimates of 12 cents. Ellison sold about $895 million in Oracle stock in January, when prices were 50 percent higher than prices seen after the company's announcement last week.

"We're seeing a very broad-based enterprise IT spending slowdown, and it's going to affect pretty much every player across the board," said Dana Serman, an analyst at brokerage firm Lazard Freres.

Serman said Oracle's missed expectations are serious, but he believes projections in the coming months are a much bigger concern.

"I think that's where the jury is completely out," Serman said. "There's a complete air of mystery around second-half revenue earnings for a vast majority of information technology companies."

Siebel Systems, the leading CRM vendor, might be forced to rethink its aggressive plans to hire several thousand new employees, Serman said.

"In the current state of things, not a single one may happen or those plans will be drastically reduced," he said. "Within a matter of weeks, the company is suddenly revising its plans, and it's a pretty significant company with significant visibility into its customers' projects."

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