Ellison on Oracle's Future

Announcements of an accelerated Fusion launch and new virtualization software—and no signs of the tech slump—pleased analysts

by Aaron Ricadela

Near the close of his keynote speech at Oracle's biggest conference of the year, the ever-colorful CEO Larry Ellison reminisced about the software company's "stressful" early days. Ellison said he'd work until 1 a.m., "come home, open up a can of pea soup, turn on CNN Headline News to see what was going on in the world, have my soup, and go to bed."

About a quarter-century later, Ellison is worth $21.5 billion, and Oracle (ORCL) is one of the world's largest technology companies. And while his diet has no doubt improved, the company still faces pressures any CEO would find stressful. In particular, customers and investors showed up at Oracle's annual OpenWorld conference in San Francisco with questions about a critical product launch due next year and the threat of a deepening slump in corporate tech spending.

Aiming at VMware

During the Nov. 14 speech, Ellison tried to put those anxieties to rest, pledging to deliver a key piece of the ambitious new product a half-year early—in the first part of 2008. He also took one of his trademark shots at an emerging rival. Oracle is nearing the home stretch of a period when, according to analysts, the company shrugged off an economic malaise that's causing customers to curtail IT purchases and prompting investors to unload tech stocks.

The accelerated product timetable is for Fusion, a project that aims to knit together the best parts of Oracle's homegrown software and the array of products amassed through its acquisitions of PeopleSoft, Siebel Systems, and dozens of other companies. Until now, Oracle had maintained the suite would arrive by late 2008 despite market speculation the complex launch might slip into 2009. But on Nov. 14, Ellison said a key element will arrive during the first half of 2008, though he conceded that customers will move to Fusion products over a "long transition period." With Fusion, Oracle is trying to close ground on archrival SAP (SAP) in the market for the software companies use to plan budgets, manage payrolls, and track customers.

Ellison is stalking new quarry as well. On Nov. 12, Oracle introduced a virtualization software product, dubbed Oracle VM. The new software will help companies make more efficient use of their servers—much like the software from industry highflier VMware (VMW). "It's a direct assault on VMware," says Brian Stevens, vice-president of engineering at Linux vendor Red Hat (RHT). Said Ellison: "Some companies say, 'We're the only ones that can do that.' …Not any more." VMware shares declined in the wake of Oracle's announcement.

A buy?

After giving his sales spiel at the convention hall, Ellison headed a few blocks uptown to address analysts at a swank hotel. Wall Street is on the lookout for any indication that a pullback in U.S. companies' technology spending (BusinessWeek.com, 10/15/07) will affect Oracle's fiscal second quarter, which ends Nov. 30. So far, that appears unlikely. Oracle's tight rein on expenses and strength in the flush energy sector could immunize it from the ills that have afflicted companies more closely tied to the beleaguered financial and automotive industries. Oracle also benefits from the quarterly maintenance fees customers pay to keep their software up to snuff. During the meeting, Chief Financial Officer Safra Catz said Oracle is poised to increase revenues faster than the 20% a year Ellison promised investors three years ago. Contract sizes are also getting larger, she said.