In the drama between Oracle and HP, there seems to be a lot of information that just doesn't make sense. If we connect the dots, another potential explanation emerges. We'll call this the "backstory" because it might exist only in my admittedly twisted imagination. But follow along and you might find it isn't that twisted after all.
Things Don't Seem to Add Up
Here are the facts that will found this story: Oracle bought failing Sun Microsystems and went through a protracted acquisition that left Sun vastly weaker than Oracle thought it would be.
Mark Hurd was fired from Hewlett-Packard under a cloud. The actual cause is unclear, but it was significant enough that a board he staffed and controlled voted against him, so it must have been more than we were told. We do know that HP's employee-satisfaction and loyalty scores are the lowest in HP's history and the lowest by far in comparable companies. So Hurd's performance at HP appears to have been faade with one exception: He was a master of cost-cutting. In addition, to quickly settle a lawsuit after he was hired at Oracle, Hurd apparently agreed to return much of his severance package from HP (though it's likely to be reimbursed by Oracle).
At the recent Oracle World conference, CEO Larry Ellison appeared out of breath and while that could have been due to nerves-not uncommon for many of us-Ellison isn't known for having that problem. While he appears healthier than the vast majority of 65-year-olds, he might have an unreported health problem. Even if I'm reading too much into this, his age alone would suggest the need to have a stronger heir.
Charles Phillips, who headed sales for Oracle, resigned, apparently to make room for Hurd. (Phillips was rumored to be looking at the CEO job at CA.) Hurd, who seems to be a bad match for Oracle, is not known for his sales prowess, but for cutting deeply to bring costs in line with failing revenues. But Oracle's revenues aren't failing. On paper at least, Oracle is doing phenomenally well. Yet this kind of staffing change-replacing a revenue creator with a cost-cutter-typically would only be done at a company on the brink of failure.
So what gives?
What's the Backstory?
There is something seriously strange going on at Oracle that has not yet been disclosed. We do know the company has been charged with fraud against the U.S. government, and that does represent a significant amount of potential lost business should these charges block Oracle from participating in future deals. But this doesn't seem to be drastic enough.
The likely areas are that Ellison's health is failing and the Sun problems may be worse, in terms of sales pipeline, than we know. Oracle reports out a quarter in advance, but large-system sales pipelines can be several years due to the high cost of these systems. By taking on hardware, Oracle is appearing more like a competitor to hardware vendors like HP and Dell, yet its Sun unit isn't capable of replacing long term that business.
This means that Ellison, who is one of the best strategic thinkers in the business, may have anticipated that while Oracle isn't yet in deep financial trouble, it soon will be. By replacing Charles Phillips, Ellison could be providing for his replacement and doing so with an expert at bringing costs in line with falling revenues. Phillips had neither the stature nor the skills to replace Ellison or to handle a potential cascading decline.
This doesn't mean Oracle will decline, only that Ellison could be making sure he has the skills on board to deal with both contingencies.
A lot of us have been assuming that Ellison might not understand what he is really getting with Hurd, but I've never known Ellison to be that stupid. So let's assume he does know what he is getting, and that is either someone who is intimate with HP and would best handle the acquisition of that company, which most think I'm nuts for suggesting, or preparing Oracle for problems that he sees coming, but we don't yet. In effect, this gives us three choices: Either Larry is nuts and on a whim replaced his top sales guy with a cost-cutter, or he is preparing to move to acquire HP, or he is preparing for a storm only he and a few others see coming. What's your vote?
Oh, one final thought: Phillips is rumored to be under consideration for the CEO job at HP (I personally think Ann Livermore is HP's best choice ) and could be a huge asset with regard to internal information on Oracle. After making such a huge fuss about HP complaining that Hurd could share HP's confidential information with Oracle, Oracle is hardly in a position to complain about Phillips doing the same thing. It will be interesting to see where Phillips shows up, but after both Oracle and IBM attacked HP, it's likely that HP is looking for a little payback. We are within days of the new HP CEO being announced, so stand by.