by Tom Taulli | December 21, 2011 11:58 am
I wrote last week about ominous earnings warnings from top companies like Intel (Nasdaq:INTC), Texas Instruments (NYSE:TXN) and Altera (NASDAQ:ALTR). It appeared that retrenchment in the U.S. and Europe was starting to take a toll. My conclusion was: “If the deterioration continues, many top multinational companies could be vulnerable to price declines.”
This week we got further confirmation of the weakness, with a lackluster fourth-quarter forecast from Red Hat (NYSE:RHT). Yet it was Oracle’s (Nasdaq:ORCL) earnings report that was really scary.
It’s rare for Oracle to miss Wall Street expectations. As a result, Oracle’s stock is off a grueling 13% in Wednesday trading, which is its worst drop since 2002 — another time when the global economy was slowing down.
For the most part, Oracle has seen a delay in purchasing from its customers. And this seems fairly reasonable — how many CEOs are really confident about 2012? In light of the uncertainty, it’s easy to hold back on information technology spending. Excluding certain items like security software, there aren’t many “must-have” software applications.
Since Oracle sells globally, it’s a good barometer of the overall business software market. In other words, this likely means weakness for other major players like IBM (NYSE:IBM), SAP (NYSE:SAP) and Microsoft (Nasdaq:MSFT).
But the weakness could even extend to the high-fliers in cloud computing, which focuses on delivering software via the Internet. Just look at Salesforce.com (NYSE:CRM), which is down 9% in Wednesday’s trading and is down 40% since July.
It’s an increasingly good idea for investors to be cautious with tech stocks. The risks are becoming substantial.
Tom Taulli runs the InvestorPlace blog “IPOPlaybook,” a site dedicated to the hottest news and rumors about initial public offerings. He is also the author of “All About Short Selling” and “All About Commodities.” Follow him on Twitter at @ttaulli. As of this writing, he did not own a position in any of the aforementioned stocks.
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