Microsoft's ( MSFT) solid second-quarter earnings provided an invigorating pick-me-up as earnings season reached its midpoint.

And good news from eBay ( EBAY) and Yahoo! ( YHOO) earlier this week also didn't hurt at all.

But Mr. Softee's better-than-expected numbers weren't nearly enough to cure the blahs that continue to haunt tech stocks. The Nasdaq posted another losing week (down 0.7% since Friday), sparked in part by Advanced Micro Devices ( AMD), which, mired down in the big muddy waters of a price war with Intel ( INTC), posted a truly ugly quarter.

One big reason for the long faces (and short positions) is this: Among S&P 500 companies, tech earnings grew by a paltry 2% in the December quarter, while overall earnings by index companies grew by just under 10%, according to Thomson Financial. A final accounting of the quarter's strength is still a week or so away; just 39% of the S&P 500 has phoned home, and a bit more than half of the tech companies have reported.

But what we've seen so far is making a lot of investors -- already fretting over inflation -- nervous.

Thomson also reports that of the 39 tech companies that have posted earnings, about two-thirds have exceeded expectations and only a few more than 10% have missed. On the surface, that looks like a bullish performance. But consider this: The growth in S&P 500 tech earnings was just a fraction of what it was at this time last year, when profits were up a solid 18% year over year.

So what we have here is a collective lowering of expectations. And that's not good news, says Richard Williams, chief software analyst for ICAP. "The Street is following consensus so closely that it sometimes misses the larger picture. What we see is the deceleration of the rate of growth of many of our software companies, and that's more important in the intermediate and the long term than making or missing guidance."

At least some confirmation of the veteran analyst's thesis crossed the tape Friday when Bloomberg News reported that Citigroup ( C) was planning to slash expenses by a cool $1 billion.

Sure, personnel will take a big hit, but odds are that IT spending, particularly capital expenditures, will go under the knife as well.

And Citigroup isn't the only major company to cut IT spending. IDC, a marketing and research group, had projected spending on hardware, software, services and the like to grow by 6% this year, about even with last year's pace. But IDC's analysts subsequently scaled back that projection to a tepid 2.8%.

Still, if you look back to the end of 2005, you'll see that the Nasdaq has appreciated by 10.4%. "That's actually a decent return. But because tech stocks are so volatile, we get all these gyrations and angst," says Chuck Jones, technology analyst for Atlantic Trust Stein Roe.

Not a bad thought.

Duck, Marc

Oracle ( ORCL) has been paying lip service to on-demand customer relationship management software for some time. It inherited the old Upshot business from Siebel Systems, which in turn was assimilated by the Borg-like database giant, but Oracle hasn't done all that much with the division, says Cowen analyst Peter Goldmacher.

But now, he says, Oracle plans to "relaunch its offering with renewed vigor in the coming weeks."

Unlike conventional software, on-demand software is run on the vendor's servers and is generally sold on a subscription basis. On-demand dramatically lowers the cost of ownership (OK, there's some disagreement about this) and has made the category one of software's hottest. And that, of course, has made a fortune for Salesforce.com ( CRM) and its hyperbolic CEO Marc Benioff.

At first glance, the Oracle campaign appears to be bad news for Salesforce. But Goldmacher thinks otherwise. He figures that Oracle will be targeting the old Siebel base of Fortune 2000 companies, which isn't Salesforce's stronghold in the mid-market.

Although Benioff points to his company's recent wins with Dell ( Dell), Cisco ( CSCO) and other giants, Goldmacher says the Salesforce offerings don't really compete with Oracle at the high end.

Told of Goldmacher's research note, Benioff, who had just arrived in Zurich after attending the Davos economics conference, was in the somewhat odd position of having to say (implicitly at least) that Oracle is a threat. With characteristic bravado, he noted in an email exchange that such launches typically include a big ad in The Wall Street Journal, and that paper, he said, "is our customer."

Look for an announcement of Oracle's intentions this week at a series of meetings with investors and the media in New York.

Cowen does not have an investment banking relationship with Salesforce.com.


TechWeek Scorecard
Index Closing Change
Nasdaq Composite 2435 -0.7%
Philadelphia Semiconductor 463 1.1%
Goldman Sachs Software 183 0.0%
TSC Internet 249 0.4%

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