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Bob Evans
Bob Evans

Global CIO: Oracle Layoffs Threaten Larry Ellison's Credibility

Oracle has every right to cut employees while integrating Sun, but the problem is that Larry Ellison said very specifically that would not happen.

As I've written recently about IBM and Hewlett-Packard and Oracle, layoffs are an unpleasant but inevitable part of life in our system of free-market capitalism. The CEOs of each of those companies—Sam Palmisano at IBM, Mark Hurd at HP, and Larry Ellison at Oracle—have each recently been the target of intense criticism for laying off significant numbers of employees, and for not revealing as much detail about those layoffs as some observers would like.

That criticism is, in my opinion, a lot of overheated nonsense—just as CEOs have the right and obligation to add new employees to meet new market demand and opportunity, so too do they have the right and especially the obligation to reshape their workforces as market conditions dictate, whether through transfers or divestitures or layoffs.

In the case of Oracle and Sun, Larry Ellison paid a lot of money for a damaged brand and a struggling company based on his fervent belief that Oracle's future prospects could be greatly enhanced by getting into the systems business.

Ellison was quite explicit about that: he said he had "no interest—none" in getting into the hardware business, but had a huge desire to move Oracle into the systems business, where it could weave its software together with Sun's hardware to provide customers with fully integrated and optimized solutions.

And as is often the case with Ellison, his move triggered widespread reaction: since his description of his strategy for optimized systems, a number of other major IT players have begun talking in similar terms. I continue to believe the Sun acquisition and articulation of the systems strategy were bold and visionary moves by Ellison that will be beneficial to not only Oracle but also to its customers and to the IT industry overall.

But if Ellison was explicit—and passionate—about why he bought Sun and where he intends to take its products and its people, he was equally explicit and passionate—perhaps even more so—about his and Oracle's commitment to Sun's people. In late January, he said that Sun's technology has been "a national treasure for decades" and that "We are not cutting Sun to profitability"—in fact, Ellison said at that time that while Oracle planned to lay off about 1,000 back-office Sun employees, it was simultaneously hiring 2,000 salespeople for a net gain of 1,000.

(For further background and analysis on Oracle-Sun and industry layoffs, be sure to check out the "Recommended Reading" list at the end of this column.)

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Those claims by Ellison have been called into serious question by Oracle's recent announcement in an SEC filing that it's taking charges of between $550 million and $650 million for personnel reductions, primarily in Europe and Asia. Those were part of a larger set of actions that also included closing facilities and terminating contracts, but the dollar figures cited above are exclusively tied to severance packages. (To see the filing click here and then open the filing dated June 4, 2010.)

Oracle declined to state how many employees are being laid off, but we can get some ballpark figures by doing some estimates:

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