SAN FRANCISCO (AP) — Investors fled technology companies catering to businesses and government agencies after a discouraging quarterly report from Oracle Corp. pointed to a possible sales slowdown that could drag down the industry next year.
The stocks of Oracle and an assortment of other business software makers were discarded in Wednesday's trading. Wall Street administered the beating in reaction to Oracle's lackluster performance during the three months ending in November.
The results, announced Tuesday after the stock market closed, fell well below the projections of industry analysts and Oracle's own management. The shortfall stoked fears that big spenders on software and other technology are pulling back as the uncertainties raised by Europe's debt crisis threatens to topple a fragile global economy.
Oracle absorbed the brunt of the punishment. Its shares plunged by 12 percent, their steepest decline in nearly a decade. The jarring downturn lopped about $18 billion off of Oracle's market value and trimmed about $4 billion from the fortune of its CEO, Larry Ellison, who owns a 22 percent stake in the company. Oracle shares had plunged $3.51 to $25.67 during Wednesday's late afternoon trading. It marked the biggest single-day drop in Oracle's stock price since March 2002 when the shares plummeted 14.5 percent, according to data compiled by FactSet.
The list of other business software makers caught up in the downdraft during late afternoon trading included: VMware Inc., whose share fell $9.69, or 11 percent, to $75.63; Citrix Systems Inc., down $5.66, or nearly 9 percent, to $57.72; SAP AG, down $3.92, or 7 percent, to $51.81; F5 Networks Inc., down $8.30, or more than 7 percent, to $101.09; Teradata Corp., down $3.01, or 6 percent, to $47.48; Cognizant Technology Solutions Corp., down $4.64, or 7 percent, to $62.99; Salesforce.com Inc., down $6.22, or 6 percent, to $98.10; and Red Hat Inc., down $2.01, or nearly 5 percent, to $39.94.
More diversified technology companies that, like Oracle, sell hardware as well as software also got clipped. For instance, IBM Corp. shares shed $6.79, or nearly 4 percent, to $180.45 in late afternoon trading.
The sell-off had analysts debating whether Oracle's letdown had more to do with internal problems within the company or a clampdown on technology budgets by major technology customers heading into the new year.
Although Oracle's sales team may have executed poorly during the quarter, Nomura Securities analyst Rick Sherlund was troubled by apparent delays during the quarter. Oracle executives said the decision makers who typically can sign technology contracts held off because they needed to get approvals from higher up in the chain of command — in some cases from the CEO. In a Wednesday research note, Sherlund said that kind of caution typically signals companies are getting worried about the economy.
"We have reduced estimates rather sharply to reflect a greater macro slowdown than we had previously thought likely, recognizing that extrapolating from one single quarter as a data point may prove to be an overreaction," Sherlund wrote.
In a Tuesday conference call, Oracle executives predicted many of the deals that got delayed in the last quarter will get done in the next few months. The company, based in Redwood Shores, Calif., declined further comment Wednesday.
JMP Securities Patrick Walravens was more sanguine in his Wednesday research note. In anticipation of a quick rebound, he maintained his $36 price target for Oracle's stock. The shares haven't traded that high since May.
Although he branded Oracle's quarterly results as "worrisome," Forrester Research analyst Andrew Bartels believes the company was hurt most by the misfortune of having its quarter close in November. The month was marked by high anxiety in the eurozone about possible government defaults and disheartening government reports about the state of the U.S. economy.
"So, business executives were understandably cautious about the business outlook," Bartels wrote in a Wednesday blog post.
But more encouraging signs about the U.S. economy's recovery and debt relief in Europe may have spurred more technology spending in the final weeks of the year, Bartels. He thinks that means companies whose quarters end in December and January — a group that includes IBM, SAP, VMware, Citrix and Salesforce.com — may fare much better than Oracle.
Forrester Research expects U.S. spending on information technology to increase by about 6.6 percent next year, in the same range as last year's.
A stronger dollar also is squeezing Oracle and other technology companies with significant sales overseas. The currency shift is translating into less revenue from markets such as Europe, making for unfavorable comparisons to last year.