Is Oracle in trouble? Experts debate the outlook as Open World kicks off | #OOW14
It depends on who you talk to. As the Oracle Open World 2014 (#OOW14) conference kicks off today at the Moscone Center in San Francisco (from which theCUBE will be broadcasting live), we asked six industry analysts to share their opinions on Oracle’s health. They discussed Larry Ellison’s departure as CEO, the company’s cloud strategy, its market growth, its strategy to combine hardware and software, its recent acquisitions and its social software solution launches.
The consensus was that Oracle is making the right moves but that its late start and large legacy business limit its nimbleness. However, its powerful brand is an enormous asset.
The analysts we contacted for this story include Dave Vellante, chief analyst and CEO of Wikibon Research; Rick Sturm, founder & CEO of analyst firm Enterprise Management Associates; Frank Scavo, president of IT research firm Computer Economics, Inc.; Chad Eschinger, VP research, software & supply chain management at Gartner, Inc.; Rob Enderle, owner and principal analyst at the Enderle Group; and Tony Baer, principal analyst at research firm Ovum.
On Larry Ellison sailing away from CEO title
Ellison ran research and development (R&D) for years so his new title as CTO is not much of a change, according to Dave Vellante, Chief Analyst and CEO of Wikibon Research. “Last year, when Ellison skipped Oracle Open World for the sailboat race, you got a sense of what life would be like without Ellison. I think he’s been considering some succession planning,” said Vellante.
The way others read the news, Ellison’s so-called exit is really not much of an exit, and may even be intended to distract attention from the company’s earnings shortfall.
“In my opinion, this is the biggest non-exit I’ve ever seen,” said Frank Scavo, President of IT research firm Computer Economics, Inc.. “He is not leaving Oracle. He’s not even stepping away from day-to-day operations. He will still have all of engineering and product development reporting to him.”
Scavo said a real exit would look like Steve Ballmer’s departure from Microsoft. Ballmer not only stepped down as CEO but also resigned from the board of directors. “Larry is not leaving the building,” said Scavo. “If I were a cynic, I’d say that the timing of this announcement has a lot to do with the fact that Oracle missed its quarterly numbers.”
On the other hand, Ellison may really think it’s time to throttle back, said Rick Sturm, founder & CEO of analyst firm Enterprise Management Associates. “He turned 70 this year. Perhaps he had planned that milestone as the time when he would step down,” Sturm said. “Perhaps he wants to go out on top, for example, while Oracle is still enjoying some relatively good times.” Echoing other analysts, Sturm asserted, “Anyone who believes that Larry is actually relinquishing control of the business is probably also clinging to their belief in the tooth fairy.”
Co-CEOs Safra Catz and Mark Hurd “may have a bit more latitude than they have had to date, but Ellison cannot and should not become an absentee landlord,” Sturm commented. “Too much of his personal wealth is still in Oracle stock to take that risk.”
The co-President arrangement has worked at Oracle, Sturm added, but a co-CEO scenario is different. “It has not worked out well in many other instances where it has been tried,” he noted. “I do not foresee this arrangement at Oracle working well or lasting long.”
In fact, Ellison’s power may have actually increased, said Rob Enderle, Owner and Principal Analyst at the Enderle Group. If you assume that the Executive Chairman is the de facto CEO and the other two CEOs report to him, then Ellison has consolidated power. “An Executive Chairman’s job is considered both full-time and the highest executive position in the company,” Enderle said. “The CTO job adds a second salary, so he effectively gave himself a big raise, but I doubt he’ll be working any more hours.” Enderle characterized the shift as “a way for Ellison to make more money but not have to report it. He must think we are all idiots.”
On Oracle’s cloud strategy
Ellison famously dismissed cloud computing as “nonsense” five years ago, but now Oracle is throwing the company behind the concept. “When you do that, you steal from elsewhere and, for Oracle, they’re stealing from their core business,” said Wikibon’s Vellante.
However, Oracle now appears to be all in, Scavo said. “It is one of the few vendors that is attempting to provide cloud services at all three levels: infrastructure (IaaS), development platform (PaaS), and applications (SaaS),” he said. “Over the short term, the transition to cloud services is likely to impact Oracle’s financial results as license sales are cannibalized by subscription sales. I think you already saw that in the last quarterly earnings call. But over the long run, Oracle has a good shot at success as it has the resources to make this work.”
Oracle is collecting a good portfolio of solutions in the key growth markets. “It’s currently building out the other layers of cloud that include PaaS and IaaS and those are nascent today but hold a promising future for adoption,” he said.
But Enderle called Oracle’s cloud strategy mostly sales collateral. “They aren’t considered a cloud player yet,” he said.
Architectural consistency between Oracle’s on- and off-premise applications should be a differentiator, Baer said, but it can also be liability. “Oracle is not so much fighting to defend old workloads—even with some attrition in areas like CRM or HCM (Human Capital Management)—but competing for new application workloads. It is challenged by new generation players who are perceived as lower cost.”
On Oracle’s market growth
Oracle’s market growth is slowing as cloud services supplant traditional on-premise licenses, Vellante said. On the one hand, “They see Workday Inc.’s success and want to crush it,” he said. “But they also need to figure out how to replace that software licensing revenue.”
Sturm said that it is no secret that Oracle revenue has shown little growth since mid-2011, “However, that is not particularly telling as compound annual growth rate for IBM over the past 10 years has been only one percent as noted in a recent article,” he said.
Oracle is undergoing a moderated transition that is impacting its traditional on-premise software business as it moves the company more towards cloud solutions, Eschinger noted. “Its hardware business is also going through a transition from low-margin to higher-margin deals, and this process is still being worked through,” he explained. “Net Oracle posted earnings were in line with my expectations given its ‘re-alignment’ and current business environment.”
Others think Oracle is struggling more than we actually see. “Reporting has been in question ever since they replaced their last CFO with Ellison aide Safra Catz, whose job has always been to see that Ellison’s wishes are fulfilled” said Enderle. “In a world of analytics, cloud services and mobile devices, Oracle continues to look out of date and out of place, [indicating] that things are far worse than they look.”
Oracle is facing an inflection point, according to Baer. “When a company is as large as they are, it is difficult to get the high growth multiples that Wall Street wants,” he said. “Having absorbed the Sun hardware business, with its lower margins, the growth challenge has been steeper.”
On Oracle’s strategy to combine hardware and software
Oracle’s strategy to combine hardware and software lines into integrated appliances is having trouble gaining traction but looks promising in the long run, Vellante said. “Oracle’s got killer operating cash flow. I think what’s happening is, they’re pouring that cash into their cloud efforts,” he commented. “The jury’s still out on how well the hardware plus software strategy will play out in the long run, but I think Oracle will succeed in generating revenue from this.”
Sturm pointed to a recent article that characterized hardware as the least profitable part of IBM’s business. “[IBM has] divested commodity hardware,” he said. “At the same time, Oracle continues to pursue its hardware strategy. Unfortunately, hardware revenues have generally been disappointing.”
Eschinger was more cautious. “It’s a little early to tell how successful these combinations will be,” he said.
Enderle, though, was characteristically emphatic. “This was a disaster in the making,” he said. “Word is they effectively have to give the hardware away to move it and that IT shops put much of it into storage after they get it.”
Baer likes Oracle’s Exadata machine, though. “Its multi-tenancy solution via pluggable containers from Oracle 12c potentially brings enormous economies of scale and simplicity of administration,” he said. “Those advantages tend to get blurred behind raw numbers and perception, not to mention solutions that leverage commodity infrastructure.”
On Oracle’s acquisitions & social software launches
Oracle is making key acquisitions and also launching more social software solutions, observed Vellante, in areas such as cloud, social, mobile. That’s “the trio for success in the industry,” he said.
The acquisitions are logical, according to Eschinger. “They should help Oracle stay competitive in an evolving marketplace where younger, less-established providers are offering solutions and capabilities in these areas,” he said.
Oracle Open World 2014 (#OOW14) conference
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