Often the most instructive events are those that didn't occur. Sherlock Holmes, for example, famously solved a case by understanding why the dog didn't bark in the night.

In that light, consider the tech crash that didn't happen when Microsoft ( MSFT) announced that the consumer edition of Vista, the long-delayed new version of Windows, will be delayed yet again.

There was lots of squawking on television and in the blogosphere. And there was some weakness in premarket trading Wednesday morning (the announcement hit the wires well after Tuesday's close). But at the end of the day, the tech-heavy Nasdaq was up 9 points.

Tellingly, the shares of companies that are heavily dependent on sales of PCs -- such as Intel ( INTC) and Dell ( DELL) -- were both up a bit, as was the Philadelphia Semiconductor index, while Microsoft itself was dinged only 30 cents.

"The big-caps don't matter as much in technology," says Hilary Kramer, chief strategist at ANG Capital. "They are value stocks, and what moves the Nasdaq are the growth stocks."

Indeed, the four horsemen of technology -- Cisco ( CSCO), Dell, Intel and Microsoft -- have been anemic investments for years, despite generating plenty of cash and earnings, says Daniel Morgan, portfolio manager for the $5.45 billion Synovus Investment Advisors.

In the last two years, Microsoft was the only company of the four to (barely) outperform the S&P's 18% appreciation, while Intel, Dell and Cisco all moved in the wrong direction, depreciating by 28%, 10%, and 9%, respectively.

"There's all this talk about things that don't show up as appreciation in portfolios," says Morgan. Instead, he prefers to focus on companies whose new products "are more than just extensions of existing products. That's where you'll see some growth."

So Morgan looks to "innovators" such as Apple ( AAPL) or Nvidia ( NVDA), or Research In Motion ( RIMM). "A few years ago you didn't see people walking around listening to MP3 players or tapping out messages on their handhelds," he says.

Kramer worries that the market's decision to shrug off Vista also could be a sign of what the former Fed chief called irrational exuberance. "We are grabbing on to positive news as everyone watches the market race to new highs," she says.

But short activity is picking up and "we could be setting ourselves up for a fall," she warns.

Not every analyst who has decided that the big four (or five, if you count Oracle ( ORCL)) old-line tech giants are no longer bellwethers is negative on their stocks. Scott Kessler, the head of technology sector equity research at Standard & Poor's, for example, has strong buys on Microsoft and Oracle.

Why? "They're inexpensive and have intrinsic value that is not predicated on outsized growth," he says.

But Kessler adds that "something that's good or bad for Microsoft doesn't necessarily have a big impact on a lot of technology companies." This was telegraphed when Intel issued disappointing guidance in early March and the market shrugged it off, he says.

Thomas Berquist, a longtime sell-side analyst who is now CFO of database software maker Ingres, explains the calm reaction of "horsemen" investors this way: "Keep in mind those companies are no longer bellwethers of technology growth. The people who own them are not likely to be shaken by short-term issues," he said.

But if Vista were canceled, or turned out to be a failure, "that would drive even value investors out," he says.

There was one last burst of bad Microsoft news this week -- the company conceded that consumer versions of Office also will ship late. Investors shrugged again, and actually bid up Microsoft's shares by 16 cents to $27.01 on Friday.

Oracle Falls Flat -- or Did It?

Oracle seems to be making a habit of disappointing Wall Street with weaker-than-expected sales of database licenses. It did it again this week -- the third disappointment in a row -- when it reported otherwise in-line results for its third fiscal quarter but said that database sales grew by about half of what Wall Street expected.

There is, however, another side to the story that investors might want to look at -- and it isn't the weak excuse regarding the stronger dollar put forward by Oracle CFO Safra Catz on the analyst call.

Few analysts paid that one much attention, because everyone knew that the dollar was surging and baked it into their estimates. For the record, database and middleware sales were up close to 5% in absolute terms, and 9% in constant dollars.

In any case, once investors noticed the database shortfall (first pointed out by TheStreet.com), they started selling shares -- but the loss was made up later in the session.

But it's worth noting that the company's business model is changing, and Oracle now derives fully half of its quarterly revenue from maintenance fees, which sport margins of about 90%, says CEO Larry Ellison.

Fair enough, say Oracle's critics, but doesn't a slowdown in the sales of new licenses mean that a slowdown in maintenance revenue lies ahead? Not necessarily.

It's commonly thought that new license sales are akin to a well that feeds the spring of ongoing maintenance revenue. So, if the well dries, the spring follows. While there's some measure of truth in this, it's a rather misleading metaphor.

"It's very hard to find a major company at this point that doesn't have an enterprise database," says Rob Tholemeier, a former sell-side analyst turned independent software investor. "More and more sales come from the existing customer base."

Here's where it gets a bit tricky. Salespeople, he says, will give an existing customer the option of buying new software on a license basis, or a deferred subscription basis. "It's easier to pay $50,000 for four quarters, than $200,000 all at once," he says.

At the end of the day, revenue is revenue, but license revenue is recognized upfront and maintenance revenue is recognized ratably, so the income statement has a different look as the model changes.

Another option: Rope in new customers by discounting heavily, and make up the paltry license fees with hefty maintenance fees later on. Although analysts at market researcher Gartner say Oracle is doing just that, Co-President Charles Phillips denies it.

"Our realized discounts have not changed in several years. There's been no change in our policy there. Look to our operating margins and cash flow for evidence. They wouldn't be growing if our largest business was declining in margins," Phillips said in an email exchange.

Meanwhile, the market for enterprise database sales is slowing. According to Gartner, the database market grew by nearly 10% in 2004. "But that followed a very slow year," said analyst Colleen Graham. "We won't see double-digit growth again." Growth in 2005 was probably about 6%, she estimates.

Without faster growth, all three database leaders -- Oracle, IBM ( IBM) and Microsoft -- will be forced to mine their bases with ever more effort.

There are, of course, new opportunities to sell to smaller companies, but those sales are less lucrative. "We are now selling a lot more, lower-priced units through new volume distribution channels and online," Phillips said. "These new products are entry-level products and designed to find new users, and they are doing exactly that, especially in emerging markets."

Does this argument let Oracle off the hook too easily? Maybe so. But it's always a good idea to examine your assumptions when money is at stake.

TechWeek Scorecard
Index Closing Change
Nasdaq Composite 2313 0.3%
Philadelphia Semiconductor 505 1.8%
Goldman Sachs Software 169 -0.6%
TSC Internet 218 -0.5%

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