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SAN FRANCISCO—On the third day of Oracle Corp.s blockbuster OracleWorld conference and following as many days of deferring all mention of the “P” word, Executive Vice President Chuck Phillips on Wednesday devoted 45 minutes to reiterating the companys determination to swallow PeopleSoft Inc.
In a meeting with journalists and analysts here, Phillips scoffed at recent PeopleSoft statements to the effect that the Pleasanton, Calif., companys acquisition of J.D. Edwards & Co. will result in greater cost savings and higher revenues than PeopleSoft executives originally perceived, due in part to layoffs and consolidated office space. PeopleSoft executives at that companys Analyst Day meeting in New York last week said revenues for 2003 would come in between $2.145 billion and $2.175 billion—a projection that Phillips said was mere speculation.
“Stock prices can go up if you assume youre going to do something in a year,” Phillips said. “If it becomes clear [that something] is not happening, the price will come down. Time will tell.”
In the meantime, Oracles bid for PeopleSoft is stalled while the Department of Justice mulls over information it has compiled from Oracle in its antitrust investigation. Another hangup is PeopleSofts poison pill—a stock-related maneuver that would thwart Oracles takeover.
Oracle President and CEO Larry Ellison said on Tuesday that he expects the DOJ investigation to resolve within the next few months—specifically, in October or November, according to Phillips. As for the poison pill, its basically a stalling tactic, Phillips said. “Its very rare that a poison pill stops a deal,” he said. “They usually only buy you time to negotiate a price.”
Oracle is spending the time meeting with corporate investors and with PeopleSoft customers via online Town Hall meetings and e-mail.
Those investors are all for the deal, Phillips said, as are PeopleSoft customers after theyre heard about Oracles plans “from the horses mouth,” he said. “We think [Oracle investors] are for it. … They all said the same thing: It makes sense. The industrys poised to consolidate. [Investors] only rent these stocks. [When Oracle asks them if they want] a higher price, [they say], OK, lets do it.”
Next page: Investors want less risk.
Risky Business
Thats because investors would rather have their money in a few companies that are doing well, as opposed to having money in “hundreds that arent profitable and from which they cant make any money,” he said. “If you compare software to other industries they invest in, softwares much more fragmented,” Phillips said. “Its high risk. They want less risk: bigger companies to invest in.”
But PeopleSoft isnt hundreds of little companies, one audience member pointed out. How will taking it out help investors? “Id say [they want to get rid of] hundreds that are unprofitable and struggling,” Phillips said. “PeopleSoft over the past year has been struggling. Thats one reason we believe they went to J.D. Edwards. They had to do something.”
Ironically, one analyst said that Oracles bid for PeopleSoft is indicative of the fact that Oracle itself has to do something. Oracle hasnt been selling new licenses and is casting about for new revenue streams—in this case, revenue from PeopleSoft customer maintenance fees, according to Charlie Garry, senior program director for database research at Meta Group, in Stamford, Conn.
According to Garry, many Oracle customers, instead of renewing their software licenses when they come due, have instead been rebuying the same exact licenses—no more, no less. Oracle has been cutting deals that are up to 80 percent discounted when restructuring the licenses under current terms, Garry said.
The license revenues have been showing up as new revenue, but its essentially old wine in new bottles, he said. “The Oracle sales rep doesnt get commissioned on maintenance,” Garry said. “So theyre always looking for new license revenue. Its cheaper to rebuy the licenses you already own. Oracle is in a race to diversify their revenue stream as quickly as possible. A huge portion of their revenue comes from database sales. And the database market isnt growing. To remain viable, theyve got to diversify their revenue stream,” he said—thus the move on PeopleSoft.
Next page: How Oracle will market PeopleSoft apps.
Clarifying Ellison
In his Q&A session, Phillips went on to clarify a statement, made by Ellison in the early days of the takeover attempt, that Oracle wouldnt actively market PeopleSoft applications. Oracle officials later stated that they would still enhance and support PeopleSoft software but would eschew spending much on marketing. “Thats why theyre in trouble now,” he said. “The market for their product is maturing. It will be more expensive each quarter to convince people who dont have their product to have it. We wouldnt do all the marketing. Big conferences like this, advertising, thats all expensive.”
In yet another ironic twist, OracleWorld, the expensive, “big conference like this,” ground to a halt less than an hour after Phillips concluded his talk, after convention center officials were notified by police of a security threat in one of the convention center halls.
Phillips went on to defend Oracles plan to slack off on R&D for PeopleSoft software following a successful takeover. In supporting multiple product lines, lack of research and development dollars will actually help PeopleSoft customers, he said. “If we took PeopleSofts approach and tried to do integration with three middlewares, product sets and data models, and tried to merge it all together into some sort of strategy, it will be tough to sell and develop and support all three with the same strategy.
“If you designate one to focus on and the rest we maintain and take forward and only add what customers want us to add, and dont spend time adding features to enter, [for example,] the higher-ed market in Belgium,” Phillips said. “Software companies have to do that to get growth. The beauty is if we had PeopleSoft, all development goes to enhance existing customers needs. Were not trying to enter new markets with those development dollars.”
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