2011 In Review - The Year In Growth Technology

By Stephen D. Simpson, CFA | December 26, 2011 AAA

With the maturation of many former growth stocks, the NASDAQ Composite is no longer a reliable bellwether for growth and it can be difficult to find reliable growth stock indices; the Russell 1000 Growth Index, for instance, includes stocks like Exxon Mobil. Suffice it to say, it does not seem especially controversial to say that 2011 was a pretty mixed year for growth stocks. Entire sectors, like semiconductors, green energy and networking/communication equipment, were weak and once-leading sectors like cloud computing slowed to some extent. Nevertheless, as is almost always the case, there were still notable stories for the year.

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A Handful of Good Performers
While the story of 2011 may be more about the disappointing stock performance of growth tech stocks, there were still some worthy exceptions. Apple (Nasdaq:AAPL) continues to simply defy gravity, returning better than 20% gains in the year while also being one of the companies that managed to generate growth in PCs, smartphones and tablets.

Smartphones were something of a theme, when it came to stronger growth stories this year. ARM Holdings (Nasdaq:ARMH) and Qualcomm (Nasdaq:QCOM), likewise, not only beat the major market averages but also delivered double-digit returns on the strength of their mobile businesses. (For related reading, see 2011's Top Performing Stocks.)

Big Names Not so Spectacular
Outside of Apple and Qualcomm, there wasn't a surplus of outperformance in the large-cap growth tech area. Well-known names like Google (Nasdaq:GOOG), Oracle (Nasdaq:ORCL) and EMC (NYSE:EMC) all produced middling performance this year, with Oracle actually slightly in the red, as of this writing, and Google and EMC only positive by insignificant amounts.

Oddly enough, the problems with these stocks seem to have more to do with market sentiment and confidence than company performance. While Oracle arguably has to buy some of its growth, all three of these companies are still growing their revenue at double-digit rates and have not really given investors much reason to fear for their growth future.

Plenty of Craters
Unfortunately for growth investors, there were plenty of disappointing and depressing performances this year. Cloud computing was a red-hot area in 2010 and part of 2011, but that momentum seems to be flagging as many companies find it hard to deliver margin leverage to match their valuations.

VMware (NYSE:VMW) looks as though it will finish the year in the black and ahead of the markets, but with less than a double-digit gain. Salesforce.com (NYSE:CRM), though, is on pace to finish with a double-digit decline. Along the way, other names like Red Hat (NYSE:RHT) and Citrix (Nasdaq:CTXS) have delivered sluggish gains, but stocks caught up in the recent merger speculations. Names like NetSuite (NYSE:N) and Taleo (Nasdaq:TLEO) have been some of the best tech performers this year.

The broadly-defined communications and networking sector has also had a very rough year. Cisco (Nasdaq:CSCO) arguably no longer deserves to be called a growth company, but it's negative performance was repeated across the sector as Juniper (Nasdaq:JNPR), F5 (Nasdaq:FFIV), Riverbed (Nasdaq:RVBD) and Acme Packet (Nasdaq:APKT) are all fiercely in the red for 2011.

The Bottom Line
With institutional investors abandoning growth tech for fear of a slowing global economy in 2012, valuations in many cases have become more reasonable. While there are certainly ample causes for concern in 2012, including slowing Chinese growth, the debt and economic malaise in Europe and budget and political wrangling in the U.S., technology stocks could be setting up for a rebound, if Wall Street's worst fears prove overheated. (For related reading, see Are Technology Stocks In Trouble?)

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

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