There has been a lot of speculation in the media about the bigger-picture meaning behind the poor financial results Oracle announced Wednesday for its third quarter ended in February.
The most disappointing stat was a 2% drop in new software license and subscription revenue from the year-earlier quarter to $2.3 billion. The license and subscription performance was 4.4% below analyst forecasts and Oracle's worst quarter since a 4.5% shortfall in the quarter ended November 2011. Oracle's stock was punished on Thursday, dropping 9.7% to $32.30, but plenty of other tech stocks were dragged down, with Oracle being seen as an industry bellwether.
The question is this: Is this something that's happening to Oracle, caused by changes in the industry that will impact other tech firms, or is this something that Oracle is doing to itself, in which case only Oracle will suffer? Some of the blame can fall to shifts toward cloud software and changing hardware buying patterns, but media reports were too quick to write off Oracle's operational missteps.
Among the many analyses of what went wrong, a Wall Street Journal story titled "New Rivals Clip Oracle's Wings" captured most of the popular arguments. The article suggests that Oracle's business "is being eroded at the edges by smaller, more focused companies offering newer technology." The new options listed included cloud-based app providers like Salesforce.com and Workday, cloud-based infrastructure providers such as Amazon, and low-cost, open source data-management alternatives including Hadoop and NoSQL databases.
A second big topic, spotlighted by the San Francisco Chronicle among others, was Oracle's hardware slump. Oracle hardware tanked in Q3, with a 23% decline in revenue from the year-earlier period to $671 million. Most analysts were expecting a 10% drop, as Oracle continues its strategy of dropping low-end x86 server products in favor of high-margin products. This quarter, however, Oracle said that customers deferred purchases of its high-end Sun Sparc servers anticipating a next-generation, higher-performance T5 Sparc chip, now set for release next week.
As for those lagging software sales, Oracle CFO Safra Catz blamed the shortfall on the "thousands" of new sales reps Oracle has been hiring in recent months. "What we really saw was the lack of urgency we sometimes see in the sales force, as Q3 deals fall into Q4," Catz told analysts during an earnings conference call. "The problem was largely sales execution, especially with the new reps as they ran out of runway in Q3."
If there's blame to be assigned, the buck stops at the top. Sales are squarely Oracle president Mark Hurd's responsibility.
Everyone seems to have forgotten that Oracle went through a major sales reorganization last year after the company parted ways with one of its most senior sales executives, Keith Block, formerly executive VP of Oracle's North America sales and consulting organizations. There was speculation last summer that Block antagonized Oracle's top brass when instant messages from the executive were shared as evidence during the Oracle-HP Itanium trial. In one message, Block slighted Hurd's leadership, and in another, he said Oracle "bought a dog" when it acquired Sun Microsystems for $7.3 billion.
Responding to press accounts of a "massive sales reorg" last summer, Hurd reassured analysts, "Just to be clear, we are not lining up our sales force; they are already lined up. This is the earliest I'm aware of that we've had territories and comp plans aligned. Everyone has a boss, a territory and a compensation plan."
Apparently Oracle didn't have enough sales people lined up, because they're still hiring "literally thousands" according to Catz. And apparently those compensation plans, which were for the current fiscal year, are not adequately incenting consistent sales performance.
This goes deeper. Just how did Hurd end up as Oracle's president? That decision was made by CEO Larry Ellison, who called Hurd's forced departure from the CEO post at HP "the worst personnel decision since the idiots on the Apple board fired Steve Jobs."
By many accounts, Hurd was not a popular leader within HP, and even before his departure it was becoming clear that the company was not in great shape after the years of cost cutting that he led.
Yet by Ellison's assessment, at the time, "Mark did a brilliant job at HP and I expect he'll do even better at Oracle."
When Hurd was hired, InformationWeek's then editorial director, Bob Evans (now Oracle's senior communications VP), posed the prescient question, "Is Larry Ellison's hiring of former HP CEO Mark Hurd an act of inspired brilliance or an example of emotional overreach that will create more drama and corporate intrigue than even Oracle can stand?"
Perhaps it's too soon to conclude that Hurd's hiring was an emotional overreach. Changing times and technologies surely do have something to do with Oracle's lagging performance. But this is also about execution and leadership, and the bottom line is this: Unless the company turns its performance around, there will surely be more drama and corporate intrigue.