IBM CEO Palmisano: Oracle, Not HP, Is Biggest Rival

IBM CEO Sam Palmisano is keeping his eye more on Oracle now than Hewlett-Packard.

In an interview with the Wall Street Journal, Palmisano said that during former CEO Mark Hurd’s five-year tenure, HP was hurt by sharp cuts in its R&D budget, and that the company was declining in relevance.

He said that it is Oracle, and not HP, that will be IBM’s most formidable competitor in the upcoming years, due to CEO Larry Ellison’s continued investment in the company’s technology.

Palmisano also criticized HP’s board of directors for giving Hurd a massive severance package last month after forcing the CEO to resign.

IBM and HP have been competitors in a growing number of areas, from servers and storage to services and management software. However, during his five years as CEO, Hurd slashed the company’s R&D budget, a move that weakened the company and forced it to buy other vendors to expand its portfolio rather than create from within, Palmisano said, adding that he doesn’t worry about HP anymore.

As an example, he pointed to the recent bidding war between HP and Dell for storage software vendor 3Par, which HP eventually landed earlier this month for $2.35 billion.

“HP used to be a very inventive company,” Palmisano told the WSJ, indicating that he thought the company vastly overpaid for 3Par. “[HP] had no choice. Hurd cut out all the research and development.”

According to the WSJ, during Hurd’s tenure, HP’s R&D budget was reduced from 4 percent to 2.5 percent of its budget. IBM has kept its R&D investment at 6 percent of its budget.

Palmisano also criticized the HP board for giving Hurd a severance package of about $35 million after he resigned under pressure last month.

Hurd was accused of sexual harassment by a former HP contractor, and while an internal investigation found no proof to back up the claim, it did uncover that Hurd had fudged expense reports to cover up his personal relationship with the woman.

A month after resigning, Hurd was hired by Oracle to be co-president. HP has sued Hurd to keep him from taking the job, claiming that in that position, he would violate the conditions of his severance agreement.

“That is not a good use of shareholder money,” Palmisano said in the interview. “It was not handled in the best interest of shareholders.”

Regarding Oracle, he said Ellison’s company will become IBM’s largest rival in the future. IBM and Oracle compete in such areas as databases software, and now that Oracle has bought Sun Microsystems for $7.4 billion, that competition will bleed over into such areas as servers and storage.

Ellison and other Oracle executives believe that the tight integration of their software on Sun hardware will pose a challenge to IBM.