Oracle falls on downgrade

2 min read

Oracle (Nasdaq: ORCL) became the latest tech giant to tumble; the company got a downgrade and a maintained rating Wednesday, as shares fell 10 percent. Analysts were mixed on whether Oracle's decline Tuesday was due to business-to-business bears, or a sign that business is slowing for the software company.

Shares were down 6.81 to 62.69 Wednesday after falling nearly 12 percent amid a sell-off in the business-to-business software sector Tuesday: Ariba Inc. (Nasdaq: ARBA), Commerce One Inc. (Nasdaq: CMRC), i2 Technologies Inc. (Nasdaq: ITWO) and PurchasePro.com Inc. (Nasdaq: PPRO), were all off sharply. Oracle has always managed to bounce back from stock dips in the past.

The sell-off preceded a speech from Chairman and CEO Larry Ellison at the Oracle OpenWorld conference in San Francisco. Executive Gary Bloom later said business was "great," adding that customers are responding well to its strategy of selling all the software a company needs to transform itself into an e-business.

Nevertheless, Oracle was downgraded to "long-term attractive" from "buy" by analyst Eric B. Upin at Robertson Stephens.

Bloomberg reported that Upin said the stock isn't likely to rally much as sales growth slows, and that the stock is richly valued following Oracle's phenomenal run over the past 2 years.

It's also difficult to predict how well Oracle's new applications software will sell, Upin reportedly wrote. The overall growth rate for database software, Oracle's biggest business, is also slowing, he said.

Oracle Chief Financial Officer Jeff Henley told analysts yesterday that sales growth would slip this quarter from last quarter and only pick up next year.

Merrill Lynch said analyst Chris Shilakes kept his "intermediate-term accumulate" and "long-term buy" rating on the company.

"We believe that the current valuation on ORCL ... will cap significant material upside moves in the near term," Shilakes said in a report.

"We believe the stock's sell off yesterday was prompted by a general sell off in the software sector, prompted by increasing scrutiny of valuations," he added.

Reuters contributed to this report.