July 10, 2002 6:05 PM PDT

Ellison: I don't need an understudy

REDWOOD SHORES, Calif.--Deflecting continuing calls for a No. 2 executive, Oracle Chief Executive Larry Ellison said again Wednesday that the company does not need anyone to back him up.

Ellison, responding primarily to recent news stories that the company might need a second in command, said the current team is enough to guide Oracle.

Ellison has been operating without a No. 2 executive since president and chief operating officer Ray Lane left the company two years ago.

"The problem I found is that it's hard to have two leaders: What happened with Oracle was we had two separate visions of where the company should go. The company was divided into two factions. It's not a healthy thing," Ellison said, when asked about his executive team during a conference with financial analysts at company headquarters.

"I think it's a much better approach to have eight strong No. 2's than one. I like the current model. I love the current management team," he said.

As he stated in the past, Ellison spreads out management duties among a committee of executives. It is a pattern borrowed from Jack Welch's tenure as chief executive of General Electric. Like Welch, Ellison said he wants to groom multiple potential successors and choose a new CEO among half a dozen people or so on his executive team. A year ago, Ellison said he wants to run Oracle for another five to 10 years.

Like many others in the tech sector, Oracle, the No. 2 software maker behind Microsoft, has been hurt by the recession and the slump in tech spending by corporations. Oracle's dominance in the database market has eroded in the past year as a tough economy and stiff competition from IBM and Microsoft have slowed sales. A highly publicized scandal over a contract with the state of California didn't help Oracle's image.

As a result, Wall Street analysts have long wondered if Ellison needs a strong No. 2 executive and whether a handful of executive departures that have included Gary Bloom, who went on to become Veritas' chief executive, hurt the company. Others who have left include executives in sales and marketing.

Ellison reiterated that there has not been a brain drain.

"I hear this all the time: Larry's driven (them) away. Only the losers remain. All the good people left," he said. "That's very weird. I'm proud of the fact that when a person leaves the company, he becomes CEO of a company. That's proof we have good talent over here. Our management has never been stronger. I believe we have incredible depth."

Ellison said the Oracle management team has to be judged by its products and by profits. The company has improved its profit margins during the recession, he said. "That says a lot (about) the quality of our management team--to run efficiently in incredibly difficult times. We've had virtually no layoffs."

The company laid off 200 employees earlier this year.

In other news, Ellison said he believes midsized companies is where Oracle will see its strongest sales growth in the future. He added that the software industry will continue to consolidate while Microsoft and Oracle will remain as the strongest software players in the industry. The niche software makers such as I2, Commerce One, Ariba and Blue Martini, will go away.

When asked about the America's Cup and how much time he will take off work for the yacht race, Ellison said he will take a maximum of four weeks this year and four weeks next year for the race.

"I will take less time off this year and next year than I have in the last five years," he said. "I will be here in California, trying to do my best to do my job."

Speaking of California, one Oracle executive said he expected the company to "settle" its business with state officials over a doomed $95 million contract that led to a state investigation and months of hearings before a legislative committee. Senior Vice President Kevin Fitzgerald said the company had learned not to "get in the way of an ambitious politician" in the wake of the scandal, an echo of the company's longstanding position that the contract was a good deal for the state.

A state auditor's report in April that estimated the contract would wind up costing California $41 million more than it should--rather than save the state $100 million over six to 10 years, as Oracle contended.

Oracle Chief Financial Officer Jeff Henley also reiterated that he expects the company will earn 7 cents per share for the current first quarter with license revenue down 15 percent to 25 percent.

"No one knows how long this will go on," Henley said. "We expect (it) to be sluggish another six months and marginally improve in calendar '03."

 

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