Dow Jones Reprints: This copy is for your personal, non-commercial use only. To order presentation-ready copies for distribution to your colleagues, clients or customers, use the Order Reprints tool on any article or visit www.djreprints.com
For tech stocks, it was the year of the Big Shrug.
Investors simply didn't care about the major tech companies the way they used to. They shrugged most of them off. That many investors lacked strong convictions one way or the other was abundantly clear in the declining trading volumes in these stocks.
The average daily volume of shares that changed hands in many of tech's brightest stars declined in the 12 months through last Friday, compared with the prior 12-month period—some by small amounts, some by larger amounts.
Microsoft (ticker: MSFT) went from 63 million shares traded daily, on average, to 60 million, while Intel (INTC) saw a fall from 66 million to 61 million shares.
SAP's (SAP) share volume declined to 17.5 million shares from 19.6 million in the previous period.
Instead, the action was in old-economy stock such as Ford (F) or General Electric (GE), which saw volume hold relatively steady in the same time frame.
Some tech stocks, such as Apple (AAPL), turned in a great performance, but found their shareholders had pretty much had enough of the shares, as I wrote last week. Apple's stock volume declined from 22 million to 18 million.
Yet 2011 was not without some stocks that displayed strong conviction. For example, volume in Research In Motion (RIMM) surged this year amid the company's troubles, rising from 15 million to 19 million even as the stock plunged 76%.
Would RIM be able to meet the challenge of Apple and Google (GOOG) in smartphones? As the uncertainty mounted and the story became more complex with each twist, shares traded hands with a greater intensity than they had known the year prior.
Amid the general torpor, one stock screamed conviction. The average daily volume in shares of Oracle (ORCL) remained constant at about 31 million in 2011, the same as the previous year.
Oracle was what you would call a "crowded trade" this past year. Investors rushed to get in on what seemed to be a runaway giant, with revenue and earnings outperforming expectations much of the year.
Until, that is, the story changed.
Last Tuesday, Larry Ellison's software juggernaut came to a screeching halt, announcing sales and profit for the three months ending in November that fell short of analysts' estimates. The company followed that up with a forecast for the current quarter that was also below expectations.
Not only was this a rude surprise following numerous quarters of revenue and profit upside, it was also a mystery. Bulls on the stock were baffled by the breadth of Oracle's shortfall.
The shares declined by 12% the next day, to $25.77, as volume surged to 143 million shares. That's conviction for you—conviction to get the heck out of Oracle stock. The shares closed the week at $26.06.
Some parts of the story weren't surprising. It has been known for some time that Oracle's computer-hardware business was struggling. Oracle bought server maker Sun Microsystems back in January 2010, at a time when Sun's business was in a long-term decline.
ELLISON & CO. HAVE COMMITTED themselves to reversing the deterioration, but they have also been fairly straightforward, warning that it will take time. Sure enough, revenue from Oracle's server products fell 14%, year over year.
But what really spooked people was the decline in Oracle's core software business. Overall, revenue for new licenses sold to use Oracle's software rose just 3%, after adjusting for the shift of currencies in the quarter. That was below what most analysts had been expecting.
Within software sales, database revenue missed expectations, as did applications sales.
"The breadth of the miss, across numerous products and across all geographies, was baffling in light of other data points we've seen," said Nomura Equity Research's Rick Sherlund in a phone call on Friday. "We expected soft guidance on the third-quarter outlook, not a miss on all cylinders in the second quarter's results."
The official explanation from Oracle's co-president and chief financial officer, Safra Catz, was that Oracle had seen some last-minute sales glitches, with deals requiring more signatures to close, preventing Oracle from nailing down all of the business that it could have. Oracle appears to have left money on the table, in other words.
In response, Catz told analysts on Tuesday that the company was putting in place some processes that would in future prevent such a slip. That statement, however, was in itself somewhat mysterious.
Sherlund, in his conversation with me, was incredulous: "You've been selling software for thirty years, and you're having to now figure out how to sell software?"
Sherlund isn't a naysayer. He has a Buy rating on Oracle stock, and a $32 price target. So last week he was moved to try and figure out just what had happened.
Oracle's results, as he and every other bull know, are made more strange by the fact that peers seem to be doing just fine. Arch-nemesis SAP on Oct. 26 offered an upbeat outlook for the current quarter.
Last week Tibco (TIBX), a California-based software maker that's much smaller than Oracle but nevertheless also exposed to the vicissitudes of corporate buying, reported surprisingly good results and gave a better-than-expected forecast. Accenture (ACN) reported better-than-expected fiscal first-quarter results on Dec. 15, Sherlund points out, and a better-than-expected forecast for this quarter.
So the rest of the software world does not seem to be succumbing to a deterioration induced by macroeconomic results. No, there's something particular in Oracle's results. Sherlund volunteers that perhaps the company enjoyed some revenue in the August quarter that robbed last quarter.
Maybe, but that's just a hypothesis. Something happened with Oracle's vaunted operations in the second quarter that can't be fully explained, that can only be guessed at for the moment.
Until clarity is forthcoming, investors have lost some conviction, and Oracle's heavily traded shares may lose some of their urgency till it becomes clear again there's something to bet on, either up or down.
Oracle's earnings fell short, but Akamai's purchase of a rival cheered investors. The Nasdaq Composite Index finished Friday at 2,619—up 2.5% on the week.
Tiernan Ray can be reached at tiernan.ray@barrons.com or at blogs.barrons.com/techtraderdaily or www.twitter.com/barronstechblog
This copy is for your personal, non-commercial use only. Distribution and use of this material are governed by our Subscriber Agreement and by copyright law. For non-personal use or to order multiple copies, please contact Dow Jones Reprints at 1-800-843-0008 or visit www.djreprints.com
MySpace
Digg
del.icio.us
NewsVine
StumbleUpon
Shutterfly's shuddering shareholders have little reason for optimism even with the online photo company's stock down almost two-thirds since April.
By Richard C. Morais Penta explains how the Internet makes charitable giving so much more efficient, right up until Dec. 31st.
Broadcom, EZchip and others are favored in the new year.
The drugstore chain is well-positioned as it updates and modernizes.
Credit Suisse likes Southern, American Electric and others.
The memory maker will see lowered earnings through 2013.
Siemens, Tyco International and Wabco are some sector favorites.
The greeting-card company elicited little sympathy after weak quarterly earnings bludgeoned the stock. Bottom-fishers beware.
Read Full Article »