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6/10/2004
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IBM Said To Project Revenue Loss If Oracle Buys PeopleSoft

An Oracle attorney at the antitrust trial in San Francisco introduced evidence he said detailed IBM's concerns about lost revenue if Oracle wins its bid to acquire PeopleSoft.

IBM fears it will lose millions of dollars in software sales if Oracle succeeds in its hostile takeover bid for PeopleSoft Inc., according to evidence introduced Wednesday at an antitrust trial in San Francisco.

While cross-examining Nancy Thomas, global and Americas financial-management solutions leader at IBM Business Consulting Services, Oracle attorney Gregory Lindstrom asked whether IBM was concerned about potential revenue loss if Oracle's offer goes through. Thomas, called as a witness by the Justice Department--which is seeking to block Oracle's $7.7 billion bid for PeopleSoft--asserted otherwise, saying that IBM might see an uptick in integration sales should the takeover bid succeed. Her previous testimony had supported the government's contention that there are only three vendors with financial-management software capable of addressing the needs of large, complex businesses--Oracle, PeopleSoft, and SAP.

In response, Lindstrom offered into evidence a confidential IBM PowerPoint presentation that he said detailed IBM's revenue concerns and strategies to counter Oracle's offer. His explanation as to why this might be was that while IBM's consulting unit might recommend certain Oracle products to clients, the companies are competitors in the database market.

The implication is that IBM Business Consulting Services has a disincentive to recommend Oracle's financial-management software because it runs on an Oracle, and not IBM, database. To support that contention, he noted that IBM Business Consulting Services has 277 consultants focused on Oracle, far fewer than the 602 focused on PeopleSoft and the 1,800 focused on SAP, the market leader, whose software is compatible with IBM's database products, as is PeopleSoft's. Oracle's accounting and personnel software is not .

During a recess, Oracle attorney Daniel Wall suggested that the issue would be revisited when IBM's top software executive, Steve Mills, is called to testify.

The next witness, Laurette Bradely, senior VP of IT at Verizon Communications, expressed her fear that Oracle's acquisition of PeopleSoft would lead to higher costs. Verizon has almost completed the transition from SAP to PeopleSoft for human resources and payroll. "When the number of competitors is two, it's just a less-vibrant market," she said, echoing the government's position that Oracle, PeopleSoft, and SAP represent Verizon's only options for software capable of handing its complex financial-management and human-resources management needs.

During cross-examination, Lindstrom argued that Verizon would still have significant leverage to negotiate a fair deal with Oracle, citing the threat of dumping Oracle's database in favor of IBM's in securing good terms from PeopleSoft's suitor. He also cited an analogous negotiation between Verizon and PeopleSoft, where Verizon asked for and got free support for PeopleSoft's 7.5 product for several months until it was ready to upgrade.

Bradley held her ground, saying "You can tell me that I have two loathsome options, but that's not going to make me much happier that I only have two."

Wednesday was the third day of testimony in the nonjury trial that will be decided by U.S. District Vaughn Walker, a former antitrust lawyer. The Justice Department 's lawyers have worked to elicit testimony from software customers and software company executives that depicts PeopleSoft, Oracle, and SAP as the dominant players in the market for business applications for large companies.

Oracle has countered by citing a number of recent software sales to big companies and government agencies by other suppliers, including Lawson Software Inc. and American Management Systems Inc.

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