Ellison shows the way

HEADING A BUSINESS that’s bought more than 30 companies over the past 24 months doesn’t seem to be stressing Oracle CEO Larry Ellison too much.

At a recent roundtable on board his yacht Rising Sun – anchored off Valencia for the Louis Vuitton Cup (where his entry, BMWOracle Racing, was eliminated in the semi-finals) – Ellison spelt out his vision for the company and explained how it has managed to absorb the frenetic pace of acquisition that’s played out over the past two years.

"Our focus is to broaden the offering that we have and to target specific industries, such as financial services and retail, and ensure that we take a leadership position," Ellison said.

"We were already a US$10bn company and growing very nicely. But with the acquisitions we’ve been able to almost double the size of the company without affecting its performance. Our operating margins have still remained close to 40% and we’ve been able to take leadership positions in both banking and customer relationship management systems at the same time."

Since January 2005 Oracle has bought industry giants such as PeopleSoft and Siebel, as well as niche players such as iFlex and most recently Agile.

Ellison said: "There used to be a comment in the industry that it’s easier to write cheques than to write software. What we saw was how companies like Cisco went about acquiring and integrating companies and how the market was moving to make that an attractive option.

"We saw that governance issues had made IPOs more difficult and there was less interest from equity capital in buying up small technology firms – meaning that there were more companies for sale than there were buyers. This was therefore the perfect time to start buying."

To manage that pace of acquisition, Oracle had to change its structure from a typical software company, where decisions are made from the top down, to a more decentralised company where each division could absorb the relevant acquisitions without affecting the operations of the other divisions.

"The new Oracle is more like General Electric than the company it once was," said Ellison.

What the more aggressive acquisition strategy has enabled Oracle to do is broaden its offerings to the market and edge out a competitive advantage against archrival SAP. Ellison lambasted SAP’s strategy of retaining its focus on its core enterprise resource planning software and its focus on the small and medium business sector.

"CEOs don’t say to me: ‘Larry, the thing that differentiates us is our ledger’." The way forward is by creating the full spectrum of applications that a client might need to get a larger portion of the IT spend.

Ellison cautioned his competitor against putting too much emphasis on the SME business market, saying: "I know about this market and all I can say is it’s a tough market – good luck."

For a company that’s shifting its strategy and aggressively acquiring companies, the market is continuing to perform well on the exchange, with its share price up more than 46% over the past 12 months. However, if Ellison wants to catch up with the two technology companies with market capitalisations higher than Oracle – IBM and Microsoft – it will have to continue to grow at the same rate for the next few years.

He remains bullish in his outlook for the global economy, commenting that the US economy was still healthy despite the difficulties that it was going through and that he was continuing to see consistent growth outside the US.

He said minor shifts in US economic policy – such as raising or lowering interest rates – was unlikely to upset the growth cycle the global economy is currently experiencing and that the only factor that could possibly dent this bull market was another major terrorist attack.

With Oracle’s acquisition spree unlikely to slow and an aggressive strategy on growth in place, the question doesn’t seem to be if it will buy more companies but only which company plugs a gap in Oracle’s product line and if the price is right for Ellison to again pull out his cheque book.

Finweek

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Ellison shows the way