Oracle Corp may soon run out of excuses to feed Wall Street.

When the world's third-largest software maker missed earnings estimates for the first time in a decade back in December, it blamed an unpredictable global economy. It seemed plausible at the time.

But growing evidence suggests the company is suffering due to challenges that have nothing to do with the macro economy: mounting competition from traditional foe SAP, the loss of a key IT partner in Hewlett Packard, and a hardware business that is becoming a thorn in its side.

Analysts have become increasingly worried that the hardware business Oracle acquired in 2010 with its $5.6 billion purchase of Sun Microsystems has turned into a liability, with sales falling short of expectations.

The company's bread-and-butter database business - Oracle is the world's biggest maker of database software - may face off against competition from a re-energized SAP before the end of this year. And Oracle's highly touted new generation of business management software, released in 2011 after years of delays in development, has been slow to take off.

While this is happening in a still-shaky tech-spending environment, Oracle's rivals do not seem to be feeling the same pinch. SAP, International Business Machines Corp, Salesforce.com and VMware recently released relatively strong results and bullish outlooks, causing investors to question whether something is amiss at Oracle.

CEO Larry Ellison will deliver his latest report card on the state of the business on March 20, when Oracle releases quarterly results. An increasingly skeptical crew of Wall Street analysts will be parsing his words and pouring through the numbers for signs of fundamental business problems, regardless of whether the company meets expectations for the period.

Oracle is a company with some issues right now, said long-time Oracle watcher Rick Sherlund, a Nomura Securities analyst.

Those issues are reflected in its stock price, which has gained just 3 percent since the company reported quarterly results in December, compared with a 17 percent rise in the Nasdaq Composite Index.

Oracle officials declined to comment for this story.

SUN A MISTAKE?

Some analysts believe buying Sun has undermined sales of Ellison's software because it put Oracle in direct competition with hardware makers who had long been some of the biggest resellers of his database programs and other products.

They made a mistake getting into the hardware business. How it resolves itself, I'm not really sure, said Fred Hickey, who has been monitoring Oracle since the 1980s and is editor of the High-Tech Strategist Newsletter for investors.

While hardware makers such as Hewlett-Packard, IBM and Dell Inc continue to sell Oracle products, these days they are putting less effort into doing so, he said.

The problem may be most acute with HP, the world's biggest computer maker.

A bitter feud has erupted between Oracle and HP since Ellison's friend, Mark Hurd, abruptly resigned as HP CEO amid a sexual harassment scandal. Ellison admonished HP's board for the way it handled the matter, calling them cowardly, and then hired Hurd.

The two companies have since filed lawsuits against each other over Oracle's decision to stop producing software for high-end HP computers.

SAP's HANA DATABASE

Meanwhile, Oracle's rivals aren't standing still.

Several analysts say they are concerned about a new strategic weapon in SAP's arsenal: a specialized database dubbed Hana that pulled in 160 million euros ($208 million) in sales in its first two quarters on the market, ahead of SAP's target of 100 million euros.

SAP has packaged the technology with hardware from IBM as a niche product, a business intelligence tool to help companies analyze large quantities of data. Oracle developed a similar product - dubbed Exalytics - that it launched this month.

The bigger threat from Hana, however, is that SAP is tweaking the technology so it can be used to hold data for business management applications that handle corporate accounting, human resources and procurement software.

The bulk of SAP applications currently run on Oracle database software, and the German company is the biggest reseller of that product. But if Hana wins acceptance as an alternative to the Oracle database, that could either reduce sales of the Oracle database or force Oracle to slash prices.

SAP Chief Technology Officer Vishal Sikka told Reuters his company expects to start selling a version of Hana that will serve as a database for SAP's core suite of business management software by the end of this year.

Sikka has scheduled a press conference in San Francisco, not far from Oracle's Redwood City headquarters, on April 10 to unveil SAP's strategy for expanding in the database market.

While it is too soon to handicap SAP's chances for success in that endeavor, analysts say concern is growing among Oracle investors.

This is something we will hear talked about a lot this year. This is creating apprehension for Oracle, said Sherlund of Nomura Securities. It's an issue that Oracle will have to respond to with investors.

Jefferies & Co analyst Ross MacMillan cut his recommendation on Oracle shares to hold from buy on Monday, citing Hana as one of several reasons.

He said he was also concerned about the outlook for the hardware business, whose sales have dropped every quarter since Oracle purchased Sun.

One of the questions that has been on investors' minds is: When do we get to the point where the hardware business can grow? MacMillan said.

He said Oracle could lose some applications sales as it tries to persuade existing users to upgrade to a new product line known as Fusion Apps, which is loaded with new bells and whistles.

MacMillan said users are likely to look at other options from Oracle rivals as they consider upgrading to Fusion Apps because it will be an expensive, lengthy process to convert all of a company's systems over to a new type of software.

If you are going to upgrade, it opens the door to look around and see what else is available, he said.

To be sure, one thing that Wall Street analysts do not seemed to be concerned about is another earnings miss, given Oracle's established skill at managing the bottom line. Several said they expect the company to meet or beat modest expectations for its fiscal third quarter, ended February 29.

Wall Street analysts are projecting that third-quarter revenue grew 2.5 percent from a year earlier to $9.02 billion, according to Thomson Reuters I/B/E/S. They expect the company to post a profit, excluding one-time items, of 56 cents per share, up from 54 cents a year earlier.

($1 = 0.7677 euros)

(Additional reporting by Nicola Leske in New York, editing by Edwin Chan and John Wallace)

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