Coop's Corner

Stock crash or no, CEO Larry Ellison says that Oracle is sticking to his game plan and that means more acquisitions.

"My feeling is we are better positioned than our peers, the other software companies, to do well in tough times," Ellison said during a question-and-answer session at Oracle's annual shareholders meeting on Friday.

The company has made more than 50 acquisitions in the last 45 months. Despite the massive stock sell-off in the last few weeks, Ellison said Oracle will try to take advantage of the drop in equity prices to pick up acquisitions on the cheap.

"If times are tough, there are other opportunities...including making acquisitions that cost less," he said, adding that "acquisitions that we've been looking at for some time are less expensive for us."

While Ellison did not get specific about his plans, he said Oracle would be interested in buying "small companies that are fast growing" as well as in acquisitions of larger software firms.

The severe battering meted out to technology stocks partly reflected investor concern about a spending falloff by financial firms, traditionally big consumers of IT products and services. Still, Ellison said that he expects Oracle will remain profitable even if times turn tough.

"We've been through this once before when the tech bubble burst...This is quite different, but this management is experienced," he said. Ellison added that Oracle would emerge from the downturn stronger than before, compared with its rivals.

Meanwhile, fellow board member Michael Boskin, who also is an economics professor at Stanford, let it be known to the audience that yes, this is a downturn--and maybe even worse.

"The economy is in a recession," he said, adding that a "financial panic" has compounded the uncertainty about the duration and impact of a slowdown.

He predicted that unemployment will rise and that it "will be unpleasant" for the next few quarters. But echoing Ellison, Boskin said that Oracle was "far better positioned than any other software company" to deal with the expected reduction in capital spending.

Oracle's stock finished the day at $16.68, compared with its 52-week low of $16.

An analyst at Canaccord Adams named Peter Misek caused a minor stir on Thursday when he suggested to Reuters that Research in Motion's weak stock price may induce a buyout bid by Microsoft.

His argument is that Microsoft needs to stay competitive vis a vis Google and Apple in the smartphone arena. Conclusion: "RIM is a massive strategic fit" for Microsoft."

I'm not so sure that Microsoft would help itself by going the RIM route, but Misek's instincts are sound in one respect: the global turmoil might--and the operative word is might--spark a vigorous round of mergers and acquisitions in the technology business once normalcy returns.

What with one stock sell-off followed by another, the tech sector's biggest names have all taken their lumps. Ditto for the start-up crowd. By now, you may have read or heard about the "R.I.P. Good Times" presentation Sequoia Capital gave earlier this week on behalf of its client companies. Om Malik, who was first to report the news, offered this grim assessment:

Folks this is bad news for Silicon Valley, which has been living in a bubble, assuming that it is going to weather the global economic storm without being impacted. We have been following this story since last year, pointing out that the tech (industry) is not an island.

It's hard to disagree with Om's conclusion. Writing in Forbes today, columnist Sramana Mitra urged Silicon Valley's leaders to lead the country out of its "current miasma of fear."

Steve Jobs and Eric Schmidt to the rescue? Well, those guys are good, though not that good. But considering that we are about to start the weekend, let me try and find at least one silver lining.

The last time a stock panic ravaged Silicon Valley, what happened? There was no shortage of post-bubble doom and gloom but the technology industry mended on its own. Hewlett-Packard bought Compaq, Oracle acquire PeopleSoft, BEA, and J.D. Edwards, IBM acquired Cognos, Ascential, Rational, MRO Software, and a host of other mid-sized enterprise software companies and, of course, Google bought YouTube.

Once the smoke clears, the tech industry will undergo a similar round of Darwinian consolidation--and that's hardly a bad outcome. Do you really think Compaq would have prospered had HP not swooped in? Ditto for all those enterprise software companies had not IBM and Oracle gone on buying sprees?

I pinged a venture capitalist who I've known for years for his take. Here's part of what he wrote: (sorry, no names)

When your mail popped in, I was on the phone with several M&A companies talking about that exact strategy. One thing actively floating around is this pushes consolidation of small/mid-tier players. Then those resulting companies are the actual targets.

My Microsoft buddies tell me that the pile of crippled technology companies (crippled from a funding perspective) is so large and the prices so cheap, they have a decent pick at figuring out plays in markets, etc, whereas six months ago these options didn't exist. Bulking up the search assets, for example, is a big priority and this situation helps. But there are serious cutbacks happening at all of the big guys, so it remains to be seen if anybody will actually act on this.

In other words, chalk it up to the fear factor. Taking a deep breath as I write this, you've got to believe that that narrative will change--predicting exactly when, of course, is the hard part.

•  Postscript:

With the market's slump, Larry Ellison told shareholders at Oracle's annual meeting that the company may take advantage of the recent stock volatility as an opportunity to acquire other software makers.

Click here for ongoing coverage from CNET News, 'Tough times for tech'

Larry Ellison is finally in the hardware business. Maybe the second time's a charm.

In the late 1990s, Ellison tried to drum up support for a network-based computer. He barnstormed around the country with Sun Microsystems' Scott McNealy and made the case for a thin-client alternative to the Wintel duopoly. They were so convincing that Intel embarked upon a crash course to squeeze down costs before the NC could ever get going. Intel prevailed in that contest and Ellison moved on.

Now he's back on a considerably bigger scale--not to mention on more familiar turf.

Oracle's announcement this afternoon qualifies as big news. So does its burgeoning development relationship with Hewlett-Packard, which may be even bigger news. (HP's Ann Livermore noted that HP and Oracle already share about 150,000 joint customers worldwide. If the companies don't blow what looks to be a big opportunity, that number can only grow.)

Oracle's got a lot more riding on its "data warehouse appliance" (as Mark Hurd described the HP Oracle Database Machine) than in the days when the network computer was Ellison's rallying cry. The first units feature 168 terabytes of disk data and 64 Intel cores. HP, which made the systems according to an Oracle design, will supply hardware support. Customers still have to order the machines from Oracle, which should make Ellison happy about the opportunity for his sales team to to cultivate (and sell) that customer list to their hearts' content.

Forrester's James Kobielus noted that Oracle had demonstrated that it can now scale its DW/DBMS platform to address the petabyte-scale analytics requirements that will soon come into the enterprise mainstream everywhere."

Indeed, Ellison made the case that customers will receive better performance because Oracle has coupled its database software with custom hardware. Dana Gardner, who has a good writeup of the event, points out that in this case, the idea is to bring the "intelligence closer to the data, that is bringing the Exadata Programmable Storage Server appliance into close proximity to the Oracle database servers, and then connecting them through InfiniBand connections."

How these two companies were able to keep this secret for most of the three years it took to complete the project is a source of some chagrin to the Fourth Estate and associated blogger types who follow this stuff. But the announcement is already being hailed as "earth shattering"--and perhaps the hyperbole this time isn't so over the top.

Who would have thought look and feel would ever become important to the enterprise? But the decades-long push--maybe we can trace it back to the Macintosh--to make it easier for regular human beings to work with technology has infiltrated the thinking of the high priests of IT. Up to a point, of course. After all, we are talking about the enterprise :).

Still, there's a move underway to make enterprise apps, if not more friendly, then at least more useful. So it is that recent announcements out of Oracle with Social CRM Beehive play up the concept of integrating different enterprise features into integrated packages designed to make things easier on the regular user. Cisco is also doing something similar with the collaboration tools in its latest release of Unified Communications.

I thought it was instructive that Oracle co-president Charles Phillips went out of his way to note that Beehive was "Web 2.0-enabled." Personally, I'd prefer we banish what's essentially a vapid marketing term from the tech lexicon. But we're stuck with it so we'll make do with it for a while longer--at least until the inevitable shakeout that everyone expects but nobody can pinpoint.

Last week at the Web 2.0 conference, IBM attracted attention with its plans to open a center for "social software." As my colleague Jim Kerstetter noted, several companies holding court at New York's Jacob Javits Center at that show were as far from "social media" start-ups as you can imagine.

"Instead, they're trying to sell software, hosting, and consulting services to social media companies and to traditional technology buyers like auto makers that are trying to add communities and other "social" tools to their Web sites.

Earlier today, I had a conversation about this trend with ZDNet's Editor in Chief, Larry Dignan, who was in town to cover the Oracle World conference.

And here I thought that court sycophancy died out with the demise of the ancient regime.

In Forbes' annual list of top executive salaries, Oracle's Larry Ellison finished in first place, with total 2007 compensation at $192.9 million. I'm sure it's good to be the king. But just in case any jealous serfs are asking why this mere mortal is worth such a royal sum, here comes journalist Sarah Lacy to remind us Ellison "deserves to be one of the most highly paid CEOs in the Valley."

That might have been a good point of departure for a more searching conversation on wealth and power in America or a discussion about how society divides up its spoils. Instead, the post skims the surface. Lacy writes that "Ellison gets where software is going" and that "he also gets where the technology business is going." Gee, with those credentials, I guess Oracle's board was guilty of short-changing its CEO.

More seriously, Ellison deserves fair compensation for his labors over the years. Of course, if you ask a dozen compensation experts what "fair" means, you'll wind up with a dozen different answers. Boring blather about whether Ellison's a sweetheart or someone who kicks pussycats is irrelevant. There's a statistical benchmark to measure the CEO of a publicly traded company. So I went back in time to how Oracle's shares fared over the last decade in two-year increments.

• May 4, 1998: $26.31

• May 4, 2000: $37.12

• May 3, 2002: $8.43

• May 4, 2004: $11.35

• May 3, 2006: $14.32

• May 3, 2008: $21.50

Not the most impressive stock performance in memory. Of course, the intervening 10 years were marked by the dot-com bubble burst as well as the subsequent recession. But when the economy recovered, so did the stock market. Judge Oracle's performance for what it is over the course of the last decade, but is the CEO really worth $192.9 million? You tell me.

***

Update: Judging from the feedback, I'm a moron for not noting stock adjustment & dividend announcements prior to the bubble. At the risk of again letting the trolls change the subject, I ask again: Is Ellison worth nearly $193 million for the job turned in over the course of last year? I must have missed it when Oracle shares broke triple digits in 2007. Wait, they didn't? No kidding. 'I'm still rubbing my eyes in disbelief at anyone who thinks that this incredible compensation package makes sense based upon the company's performance. If some folks still want to make that claim, whatever. There is no shortage of suck-ups to corporate greed. Anyway, I'm moving on.

Steve Ballmer's getting a lot of (unsolicited) advice these days about what Microsoft ought to do. You can find one of the more thoughtful contributions in this morning's New York Times. Check out Randall Stross's piece in the Times, where he quotes MIT professor Michael Cusumano, warning against acquiring an "old-style Internet asset, in decline, and at a premium."

Instead, Cusamano makes offers an intriguing alternative: forget about Yahoo and go after SAP.

"It's not an outlandish idea. The two companies held merger talks in late 2003, and perhaps since then, too. Microsoft is in an enviable position: it is a nearly universal presence in corporate data centers, and large enterprise customers are arguably the best customers a software company can have. Clients pay very dear prices for the complex, semicustomized software that runs their business. And once they've got their systems running--a process that can take years to complete--they aren't inclined to change vendors lightly.

"A few dozen well-paying Fortune 500 customers may actually be more valuable than tens of millions of Web e-mail "customers" who pay nothing for the service and whose attention is not highly valued by online advertisers."

No doubt Larry Ellison would speed-dial government regulators the moment any such announcement hit the wires. Since the busting of the Internet bubble, Oracle has reconfigured itself through a relentless acquisition strategy of its own. Most of the credit should go to Ellison lieutenants Charles Phillips and Safra Katz. They've spent billions, but the deals all have made sense.

Watching from the sidelines, you have to believe that Phillips, Katz, and Ellison are cheering for the Yahoo deal to succeed. Like Cusamano, they understand that a Microsoft-SAP hook-up would be bad news in bells. I'm sure they hope Ballmer is too busy for now to read the latest business section of the "Gray Lady."