Oracle miss sparks Wall Street fears of spending cuts

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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 per cent 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 per cent to $46.97.

"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.

"There's a lot of concern about what the immediate future holds, so this may just be customers putting off investments they want to make until they feel like they have a better handle on what the future looks like," Goodman said.

MIXED SIGNALS
U.S. companies have been sending mixed signals about their spending plans for 2012. A survey released last week by the Business Roundtable found that 16 percent of CEOs of large U.S. companies planned to cut their capital spending over the next six months, up from 13 percent who had planned cuts in the third quarter.

But other data released on Wednesday by the Equipment Leasing and Finance Association showed U.S. businesses signed up for $6.2 billion in loans, leases and lines of credit to fund capital expenditures in November, a 38 percent increase from the month a year ago.

Oracle's stock fell $3.40 to $25.77, its lowest close since August, making it the biggest loser in the Standard & Poor's 500 index. It was the biggest one-day percentage drop in the stock since March 4, 2002, when Oracle last surprised investors with an earnings warning.

CEO and co-founder Larry Ellison, the company's biggest shareholder, lost more than $3.8 billion on Wednesday as the stock plunged, based on his holdings published in Oracle's annual proxy filing.

The declines accounted for about 16 points of the 27.6 point drop in the S&P 1500 Software index, which suffered a 4.5 per cent drop in market cap to about $511 billion.

The drop in Oracle shares represents 68 per cent of the decline in total market cap for the index.