Technology has not had a great year in 2011, and that's certainly true in the software space. While ETFs are not often perfect benchmarks, looking at the iShares S&P North American Technology - Software Index Fund (ARCA:IGV) shows a year-to-date decline of more than 4%. As is so often the case, though, even a down year for an overall industry can still be a very strong year for individual stocks. What worked and what didn't in 2011, in the software space? (For related reading, see A Primer On Investing In The Tech Industry.)

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Diversity at the Top
Looking at some of the top performers in software this year, it is notable that there isn't necessarily all that much unifying the stories. NetSuite (NYSE:N) has been the strongest software company of any size this year, nearly doubling due both to ongoing growth in cloud computing and renewed takeover speculation in recent weeks.

CommVault (Nasdaq:CVLT) has a been strong way to play ongoing demand for data management products, even while hardware vendors like EMC (NYSE:EMC) and NetApp (Nasdaq:NTAP) have had a tougher go of it in the market.

Fortinet (Nasdaq:FTNT) offers network security products and has left rivals like CheckPoint Software (Nasdaq:CHKP) in the dust, largely on the strength of better-than-35% trailing revenue growth and increasing analyst expectations.

Big Software Comes up a Little Small
Larger software companies were definitely not the leaders of the sector this year. SAP (NYSE:SAP) was the best of the large crowd, with returns so far this year around 7%, and seems to be getting a leg up on the likes of Oracle (Nasdaq:ORCL), with better in-memory and mobile offerings and an increasing focus on small/mid-sized businesses. Oracle, by the way, looks as though it may finish the year in the red.

VMware (NYSE:VMW) does look on pace to beat the market this year, but even ongoing strong revenue growth and demand for virtualization was not enough to deliver double-digit returns. Elsewhere, giant Microsoft (Nasdaq:MSFT) is in the red, in the mid single-digits, and names like CA and BMC Software (Nasdaq:BMC) are on pace for double-digit losses this year.

The Bottom Line
Looking out into 2012, the overall outlook for technology is certainly mixed. Although business conditions are actually pretty solid in most sectors, nobody feels especially comfortable given the problems in Europe, China and North America. As IT budgets are often one of the first targets for spending freezes, that makes for an uncertain outlook.

That said, it seems hard to envision how cloud or software as a service, data management and security software, won't remain priority areas within software. Cloud products offer a great deal of flexibility to organizations and many large software players are now realizing that they are behind the curve and looking to buy their way back. Companies continue to accumulate more and more data and run the risk of being simply overwhelmed without up-to-date data management packages. The need for security is perhaps more obvious (we all have anti-virus and firewall software), but as mobile devices continue to proliferate through enterprises, the security management headaches and demands only increase. (For related reading, see 6 Security Apps You Should Know About.)

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At the time of writing, Stephen Simpson did not own shares in any of the companies mentioned in this article.