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By Scott Malone and Jim Finkle
December 21, 2011 5:56 PM EST
Oracle Corp's dismal quarterly results sent shock waves across the technology sector as investors feared they may have overestimated the resilience of corporate tech spending in a deteriorating global economy.
The first earnings miss in a decade from Oracle, whose fiscal second quarter ended on November 30, drove its shares down more than 11 percent on Wednesday, destroying about $20 billion of market value. The shortfall from the No. 3 software maker also hit shares of many other technology companies, with VMware Inc, NetSuite Inc, and SAP among those suffering the biggest losses.
"Is this a preliminary example of what we could expect in January from Microsoft and other players? It raises an eyebrow that things may not be as hunky dory as we've been led to believe in terms of IT spending," said Daniel Morgan, a portfolio manager at Synovus Securities in Atlanta.
The troubles at Oracle follow ominous reports from big tech names including Hewlett-Packard Co, Intel Corp and Texas Instruments Inc.
The disconcerting news on Tuesday was not limited to Silicon Valley, with U.S. industrial conglomerate Emerson Electric Co reporting a drop in orders for equipment used in big data centers. Emerson shares fell 5.4 percent to $46.97.
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"Overall, we have seen in the last 60 days ... a significant weakness in this whole electronics space," said Emerson Chief Executive David Farr. "I don't see that changing for the time being."
The fourth quarter is the crucial period of the year for many technology companies because corporations tend to spend most heavily on information technology during that time in what is known as a year-end "budget flush."
Oracle's disappointing results could signal that companies won't spend all the money that they still have budgeted for 2011 technology projects, said Howard Anderson, a lecturer at MIT's Sloan School of Business, who regularly talks to CEOs of top-tier corporations.
"Confidence is not there," he said. "We have a kind of rolling recession."
Oracle's quarter ended in November, but investors worried that the decline in business confidence could signal more troubles for peers whose quarters end in December. That includes arch rival SAP AG.
"The majority of deals in the fourth quarter are traditionally closed in the last two weeks of the quarter, so the delay of Oracle's deals is a negative cross read for SAP," said Silvia Quandt analyst Michael Busse.
SAP CEO Bill McDermott declined to comment on his business, saying the company was in a quiet period.
A slowing in tech spending would be troubling for the U.S. economy, which has had few bright spots in recent years.
"Since the technical end of the recession (in June 2009) we've been seeing double-digit growth in investment in technology. If Oracle is the canary in the coalmine, that would be something to worry about," said Michael Goodman, director of economic and public policy research at the University of Massachusetts at Dartmouth.
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