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2HRS2GO: Adobe and Oracle highlight tech strength

COMMENTARY -- Yesterday's earnings reports from Oracle (Nasdaq: ORCL) and Adobe Systems (Nasdaq: ADBE) underscored a point that people have chosen to ignore in recent months:

The entire technology industry does not directly revolve around PC sales.

Shares of Oracle and Adobe are rising today following their release of quarterly results. They should be -- the companies not only performed well in the latest quarter completed, but also predicted continued strength in the quarters to come.

Adobe stood by its target of 25 percent annual revenue growth. Oracle predicted a database revenue boost of 15 to 20 percent year-over-year in the second quarter, along with a 75 percent increase for application sales. Both companies wouldn't be surprised to grow faster than the PC industry.

Technology observers have been fretting over the widely reported slowdown in PC sales and the economy in general. Investor angst is infusing the market today, with the Nasdaq Composite Index down almost 5 percent in early afternoon trading.

Oracle and Adobe are examples of the obvious, but oft-overlooked, fact that new software doesn't need a new PC.

"For Adobe growth to slow companies would need to start publishing less," Robertson Stephens analyst Alexsandr Zorovic writes in a research note released this morning. "If anything, we see companies publishing not only more, but also integrating their print and web publishing efforts and workflows and benefiting from these synergies thus upgrading to new Adobe products. ... Slowing PC demand has only a secondary effect on ADBE, and to the extent that slowing PC demand slows the companies need to publish or the companies need to buy software for publishing in print or on the web. We do not see that happening."

Despite that not-so-secret dynamic, Wall Street over the last three months had been taking Oracle and Adobe south along with the rest of the market:

Going into today, Oracle shares had lost more than 30 percent of their value since mid-September; Adobe fell more than 28 percent from late September to yesterday. ADBE shed almost 9 points in yesterday's regular trading, ahead of results.

One major brokerage even downgraded Adobe before the company's fourth quarter report.

Call me deluded, but I'd rather take a rosier view of things.

Chip companies are affected by slowing PC growth. Software firms heavily reliant on OEM bundling (read: Microsoft) feel the pain of lower personal computer sales. That's about it.

Other trends continue in the face of PC slumps, dot-com collapses and slowdowns in housing starts and other economic indicators. Traditional companies might be cutting back on their consultant spending, but they're not necessarily cutting back on their use of the Internet. Vendors of products that sell into that trend will keep doing well.

Companies like Macromedia (Nasdaq: MACR). Siebel Systems (Nasdaq: SEBL). Check Point Software (Nasdaq: CHKP). Network Associates (Nasdaq: NETA), which shed its disastrous 1999 strategy. RealNetworks (Nasdaq: RNWK), whose advertising worries have overshadowed the fact that it makes most of its money from software licenses.

I could go on, but you get the point.

You might worry about valuations. These stocks arguably were or are expensive compared to the rest of the market.

But that's the point: they're not the rest of the market. Some of them are just being treated that way.>