Wall Street Beat: Tech confidence recovers after Oracle's miss

Confidence in the tech sector appears to be recovering on strong results from Tibco and Red Hat and optimism about the economy, after sinking earlier this week in the wake of a disappointing report from Oracle.

Enterprise software has been a bright spot in a trying year for tech, as economic concerns dampened spending on hardware and natural disasters in Japan and Thailand created chaos for component manufacturers.

Oracle, a bellwether for enterprise software, on Tuesday reported that net income for its second quarter increased 17 percent year-over-year to US$2.2 billion. Revenue, however, rose a weak 2 percent to $8.8 billion, as sales of hardware systems declined. Oracle had forecast revenue growth of 5 percent to 9 percent.

The other piece of bad news was that, excluding one time items, earnings per share of $0.54 was slightly lower than analyst forecasts.

Oracle has focused on higher-margin hardware, but in a conference call, CEO Larry Ellison said it could be a quarter before hardware sales picked up, meaning the current quarter could be weaker than expected.

"Oracle will have to rebuild confidence," wrote Richard Davis in a Canaccord Genuity research note. The investment analysis firm downgraded its guidance on Oracle shares from "buy" to "hold."

"Oracle missed because some buyers waited for a new hardware upgrade, and on the software front the firm is behind the curve in cloud applications," Davis said. "We expect Oracle to catch up, but it will be through some R&D and a lot of M&A."

But Canaccord and other analysts said that Oracle's weakness does not necessarily mean trouble for other vendors.

"Oracle's software products had been running a bit on momentum, without much innovation in 2011 to its legacy products," wrote Forrester analyst Andrew Bartels in a blog. "And Oracle's Sun hardware business has been struggling for a while, so its poor results don't necessarily indicate that server and storage revenues of other vendors will decline."

Though Red Hat and Tibco do not have the bulk of Oracle, their financial reports were more positive.

On the back of strong subscription revenue, open-source software vendor Red Hat reported a steep 47 percent rise in profit to $38.2 million and a hefty 23 percent increase in sales to $290 million. The company experienced strong demand from enterprise customers and market share gains, said Jim Whitehurst, Red Hat president and CEO, in a statement. During the quarter, Red Hat closed its acquisition of open-source storage software company Gluster .

Middleware maker Tibco reported quarterly revenue of $289.5 million, up from $241.2 million a year earlier, while net income was $51.9 million, up from $37.5 million. The company is looking to expand its user base next year.

"Tibco delivered another strong year of accelerating revenue growth and expanded profitability in 2011," said CEO Vivek Ranadivé, in a statement. "As we turn to 2012, we will focus on expanding our sales coverage, extending our event-driven platform, and continuing to broaden the range of industries we serve."

After flagging in the wake of Oracle's report, tech stocks picked up during the rest of the week, ending Friday on a positive note. Economic news helped. On Thursday, for example, the US Labor Department reported a decline in weekly claims for jobless benefits.

In aggregate, the Nasdaq Computer stock index was up Friday by 11.24 points to close at 1380.83. After a week in which its shares were battered, even Oracle improved, closing up by $0.30 to $26.00.

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