Ellison Steps Down As Oracle CEO As Q1 Comes In A Bit Short
September 22, 2014 Timothy Prickett Morgan
Well, the IT industry just got a whole lot more boring, or maybe not. Larry Ellison, the co-founder of software giant and now systems player Oracle, turned 70 recently and has decided that he no longer wants to be CEO of the company. The news that he is stepping down as CEO to assume the role of executive chairman and chief technology officer comes just as Oracle has come up a little bit short in its latest financial results and as the company is preparing for its annual OpenWorld shindig, which will bring over 60,000 people to San Francisco.
In a statement, Oracle’s board said that Ellison, who has better technical chops then either of his co-presidents Safra Catz and Mark Hurd, wanted to focus on product engineering, technology development, and strategy and therefore wanted to get away from the day-to-day hassles of running the company. And to that end, Catz and Hurd have been named equal co-CEOs of Oracle and now report to the board instead of to Ellison. All other lines in the org chart remain the same, and with Oracle running the board, not much has really changed from a practical perspective except that Ellison is grooming his eventual successors for the day when he really does retire from the company. Perhaps a decade or two from now. . . .
The Internet was lively with jokes about Ellison’s stepping down being akin to Vladimir Putin stepping down as Russian president to become premier, only to become president again when it was convenient for him. It may be tough to tell the difference, really, in the case of Ellison. Catz will be in charge of manufacturing, legal, and financial functions, as has been the case for years, and Hurd will run sales, service, and vertical industries, again as has been the case for years. Ellison will be on the quarterly financial calls and will presumably still do keynotes and other public presentations and announcements. He may not be able to command the same salary, but with a net worth of around $50 billion, it will be tough for him to feel the difference.
Ellison has been on a kick to turn Oracle into a kind of IBM 2.0 since it acquired Sun Microsystems more than five years ago, and with Oracle’s board authorizing $13 billion in additional share buybacks last week, it certainly is behaving more like Big Blue. Oracle’s hardware business slid by 14 percent to $578 million in its first quarter of fiscal 2015 ended in August, and hardware systems support fell by 1 percent to $587 million. In the past two quarters, Oracle was able to stabilize the Sun hardware business, but it has started slipping again. Catz said on a call with Wall Street analysts last week that engineered systems–Oraclespeak for machines tuned for specific workloads and not generic rack machines–continued to grow and represented a third of revenues over the trailing twelve months. Some of the issue is product transitions in both its Xeon and Sparc products, and some of the issue is that customers are moving some workloads from their own datacenters to the cloud. Engineered systems had double-digit growth in fiscal Q1 and Oracle shipped its 10,000th machine in the quarter and has booked more than $3 billion in revenues for these machines. Margins on these machines are approaching 70 percent, she added, which is about as good as it gets in any hardware business with a lot of software functionality. (The IBM mainframe is an obvious exception, where the margins go even higher.)
Oracle’s infrastructure cloud services grew by 26 percent in the quarter, to $138 million, a business that is still quite small compared to the $1 billion or so that Amazon Web Services is probably raking in. Software as a service (SaaS) offerings from Oracle rose by 32 percent to $337 million. Oracle is still dependent on software license sales for on-premise gear, and this category actually shrunk in the first quarter by 2 percent to $1.37 billion. Software license updates and product support is the huge, annuity-like category at Oracle, and this accounted for $4.73 billion and grew by 7 percent in the quarter. Add in another $855 million in professional services revenues (down 7 percent) and you get a total of just a hair under $8.6 billion in revenues, up 3 percent but just a bit lower than Wall Street expected. Net income was flat at $2.18 billion for Oracle in fiscal Q1. Oracle is sitting on $24.2 billion in cash and another $27.4 billion in securities and has $32.6 billion in debts. That leaves it $19 billion ahead to do whatever it wants in terms of buybacks, dividends, and acquisitions.