Oracle: Good at Databases, Bad at CFOs
Harry You was in the role nine months. Greg Maffei was in the job four months. Whats Oracle doing to its CFOs that makes them jump ship at this alarming rate?
Rick Sherlund is the financial analyst with the Goldman Sachs Group Inc. and author of a note, put out on Thursday, that launched the speculation around Maffeis departure.
That note consequently forced Maffeis hand, Sherlund said in a second note, put out on Friday. Maffei told Sherlund that his departure was "accelerated by reports of ours questioning his status at the company" and that he was as yet not quite ready to announce his new CEO role. Rumor has it the position is outside of software, though.
Maffei may not be talking dirt about OracleSherlund said that he seemed "quite eager and enthusiastic" about his new CEO role, wherever it isbut analysts are happy to step in to do some analysis, given the wobbly nature of at least one part of Oracles upper management team.
Of course, Larry Ellisons management style having been the prime mover in driving CFOs away is the first and most obvious argument to seize upon. His choice to have three presidents, in an environment where blood thirst is encouraged, is a fine way to promote a cannibalistic dance at the top.
"Oracle has at times attempted a rather quirky management structure (most recently with 3 co-presidents)," Sherlund wrote in his recent note, entitled "Two CFO departures in the last year may be telling us something about the Oracle organization."
"Mr. Ellisons leadership style has always favored smart, aggressive individuals and a survival of the fittest mentality," Sherlund said. "We believe it was a rather obvious mistake putting three top people into this contention, when some are accomplished ultimate fighting style competitors. Oracle might be better served by its leadership establishing a culture of collaboration and teamwork rather than its traditional mercenary, survival of the fittest culture which has always driven its sales force, pushed down from its executive ranks."
Whats so bad about leaking CFOs? Maybe it doesnt matter from a technology standpoint, but it sure matters to investors.
"It gives investors another reason to question the company, to question the stability of management," John DiFucci, a managing director with Bear Stearns, told me. "[Former CFO] Jeff Henley was a pretty solid, down-to-earth-to-investors guy. Even though Larry is somewhat unpredictable in what hes going to say, you never expected anything like that out of Jeff. People are looking for someone to be pretty solid in the CFO role."
Nervous investors make for stock prices that are lower than they would be otherwise. Sherlund pointed out that Oracles stock is selling for less than a market multiple, perhaps due in large part to the perceived execution risk associated with its many acquisitions.
For its part, Bear Stearns has said for some time that Oracle should be trading at $17. It trades for less in large part due to its jerky earnings reports, the firm believes: Results just arent as stable as investors like to see, DiFucci said.
What Maffeis departure does, more than anything, is make investors raise yet another question about Oracles stability. It raises the risk profile, particularly when mixed up with the earnings volatility, DiFucci said.
"Oracles degree of strength has been volatile. Theyve generated a ton of earnings, a ton of cash flow, but everythings been very volatile," said DiFucci. "The rate of growth tends to jump around" too much, he said.
The reason why Bear Stearns has such faith in Oracleand Oracle is a Bear Stearns clientis because it sees potential for organic growth. That means not just the type of growth you get when you swallow every company in sight, but the type of growth you get when your pre-existing business grows. And wheres it going to come from, in this database market, which doesnt show much sign of growth? Why, from competitors, of course. Oracle stands in good stead to take a bigger slice of the pie than its competitors.
"We think Oracles going to gain share in [the] market," DiFucci said. "Theres [about $7 billion] of new license revenue [in the database market] every year. Just new licenses. And then theres maintenance on top of that. We believe Oracle will get a bigger share. Theyll take away primarily from IBM, some from Sybasebut theyre pretty small, so theres not much to take there. And it will extend losses at the low end from Microsoft."
Why? Because of RAC. Nobody has RAC and nobody will have it for years. Oracle also has its low-cost Standard Edition 1 and most recently its free Express Edition database. Just as Microsoft is ready to push into the high end with next weeks release of SQL Server 2005, Oracle is all over invading Microsofts home turf, specifically with regards to getting a tasty low-cost Business Intelligence package into customers hands. Yes, were talking HTML DB packaged up with the Express database, a cost-nothing way to get sophisticated BI into the hands of students and other database-impoverished populations. Its the heroin model: Get em hooked while theyre young, and theyll grow up to buy a steady fix of Oracle license.
In the meantime, Oracle CFOs wobble, and they do fall down. Or away, as the case may be. Although investors dont like the wobble, co-president Safra Catz is on the job, and analysts admire her. Shes done an interim stint as CFO before, after You left to become BearingPoint CEO. She has a solid team of lieutenants beneath her and the ability to put into play Ellisons dictates.
When belts needed to tighten during the downturn, Catz was instrumental in tightening them, as Oracle trimmed staff, consolidated its internal IT and even moved to eat its own dogfood. Many companies neglected to do that, but Oracle was still making money when the dark days of 2001 and 2002 were upon us.
Still, the departure of two CFOs in one year is yet another cause to pause when it comes to how things are run at Oracle.
"If Oracles stock is to regain its premium, the co-presidents should maybe consider how the organization learns from its mistakes and changes," Sherlund said. "Mr. Maffeis departure does not likely signal a problem with business this quarter or the companys fundamentals with respect to the strengths of its products or competitive position. Rather, two CFO departures in the last year may be telling us more about the organization and the need for some change in the culture, driven by leadership from the top down."
Editors Note: This story was updated to correct a quote from John DiFucci regarding the size of the database market and to correct his name throughout.
Lisa Vaas is Ziff Davis Internets news editor in charge of operations. She is also the editor of eWEEK.coms Database and Business Intelligence topic center. She has been with eWEEK and eWEEK.com since 1995, most recently covering enterprise applications; database technology; and RSS, syndication and blogging technologies. She can be reached at email@example.com.
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