Chris O’Brien

Vanishing Public Companies Lead To The Incredible Shrinking Silicon Valley

// February 17th, 2010 // Comments Off // Innovation, O'Brien, Oracle, Silicon Beat, Strategy, google

One of the most significant trends I’ve been watching over the past decade is the dramatic drop in public companies in Silicon Valley. Naturally, that number was artificially inflated during the dot-com bubble when it reached 417 in 2000. For our purposes, Silicon Valley includes San Mateo and Santa Clara counties, and the southern half of [...]

More on HP job cuts from me and readers

// February 16th, 2010 // Comments Off // Apple, O'Brien, Oracle, Silicon Beat, Strategy

If you missed it, over the weekend we ran my look at Hewlett-Packard’s massive job cuts over the past decade: 75,505.
I have a few other stray thoughts that didn’t make it into the main story. And a few questions I want to follow up on in the coming weeks.
First, the stray thoughts.
What I still [...]

Larry Ellison, Cloud Computing And The Future Of Oracle

// September 24th, 2009 // Comments Off // Innovation, Larry Ellison, O'Brien, Oracle, Silicon Beat, Strategy

I may not always be the biggest fan of Oracle founder Larry Ellison when it comes to issues like executive pay. But I do appreciate his business savvy and ability to cut through the fog of marketing nonsense and get right to the heart of things. I thought about this when I read his remarks from his appearance at the Churchill Club with Ed Zander.

Ellison was asked about cloud computing, and Merc reporter Brandon Bailey wrote:

“Known for his strong ego and outspoken views, Ellison drew laughter when he ridiculed the industry trend known as “cloud computing,” saying as he has before that it’s nothing more than a faddish term for the established concept of computers linked by networks. “A cloud is water vapor,” he observed.

But what really struck me is that in his remarks this week, and other recent statements like the announcement of the configured Sun database product, that Ellison is actually going to do the unthinkable: He’s going to keep the hardware business.

This shocks me for a couple of reasons.

First, Oracle has been incredibly disciplined when it comes to operations. It runs a tight ship. And as it’s swallowed endless software rivals, it’s managed to continue to increase its operating margins over the years. It’s something that Oracle has rightfully bragged about.

But Sun’s margins on hardware are thin. The conventional wisdom is that Ellison will slash thousands of jobs to cut expenses. But that’s trickier than it sounds. Who are you going to cut? The hardware engineers who maintain and upgrade the technology? The sales people who have specialized knowledge of the products and the markets?

It’s hard to see how else Oracle boosts the margins on Sun’s products when Sun hasn’t been able to do it by itself. The announcement earlier this month about the Sun server pre-configured to run Oracle’s database seems to be a nod toward a hybrid strategy. But I’m not sure how compelling that really is for most customers.

Going forward, Oracle is going to need to continue pouring research money into Sun’s products to keep them advancing and competitive. That also won’t be cheap.

And finally, this has all the making of one giant distraction. Ellison showed he has the ability to remain focused and integrate a big acquisition when Oracle bought PeopleSoft. But getting into a hardware business might be a whole different learning curve. And already, the fact that the European Union is extending its review is deepening the whole Sun is in, and demanding attention from Oracle executives.

Of course, even if Oracle did want to spin off the hardware business, it’s in a tricky spot. If it says that directly, the bottom would probably fall out of Sun’s revenues. And as the EU review drags on, Sun is probably becoming less valuable every day. PeopleSoft fought aggressively to hold onto business when its fight against Oracle lasted almost 18 months. It doesn’t seem like Sun is doing anything similar.

So if Oracle did want to sell the hardware business to Hewlett Packard or IBM, it’s probably can’t even hint about it until after the deal closes. Which now won’t be until early next year.

But I’m wondering what you think. Is this really a stroke of genius on the part of Ellison? Or is the makings of a train wreck?

Here We Go Again: Oracle’s Ellison Gets More Options

// July 13th, 2009 // Comments Off // Larry Ellison, O'Brien, Oracle, Policy, Silicon Beat

Last year I wondered why Oracle CEO and founder Larry Ellison continued to receive additional stock options when he already had more than 1 billion:

“However, I do have a beef with Ellison’s compensation that should get a sympathetic ear from Oracle’s shareholders: Why is the company doling out more stock to a man who already owns 22.3 percen?”

It’s not like I expected Ellison or Oracle’ s board to listen to me. And guess what? They didn’t!

I came back from vacation today to find this nugget about Oracle’s board awarding Ellison another 7 million stock options for the fourth year in a row.   The four-page report, called “Larry Ellison Rides Again,”  comes from Graef Crystal, one of the most respected voices on executive compensation. In meticulous detail, Crystal breaks down the numbers, and in doing so, points out the absurdity of this latest award.

Perhaps there’s no more room for outrage when it comes to executive compensation, or Ellison continuing to rack up more options, but in any case, here are the highlights of Crystal’s analysis.

First, Crystal gives the history of Ellison’s recent stock option awards:

• “On July 6, 2006, he received a grant covering 7,000,000 shares with a strike price of $14.57 and a term of 10 years. The company declared the option to have a grant date fair value of $50 million.”

• “On July 5, 2007, he received a second grant covering another 7,000,000 shares, with a strike price of $20.49 and a term of 10 years. The company declared the option to have a grant date fair value of $71 million.”

• “On July 3, 2008, he received a third grant again covering 7,000,000 shares, with a strike price of $20.73 and a term of 10 years. The company’s declaration of grant date fair value is not currently known, as the proxy covering the fiscal year ended May 31, 2009 has not yet been filed.”

• “On July 2, 2009, he received a fourth grant again covering 7,000,000 shares, with a strike price of $21.04 and a term of 10 years. The company’s declaration of grant date fair value is not currently known, as the proxy will not be filed for over a year.”

Was he really worth that? Crystal:

“It is important to observe here that the strike prices of the most recent three grants — $20.49 for the grant made on July 5, 2007, $20.73 for the grant made on July 3, 2008 and $21.04 for the grant made on July 2, 2009 – are essentially unchanged. The compounded rate of stock price appreciation between July 5, 2007 and July 2, 2009 was just 1.46 percent per year. And for the single year ended July 2, 2009, Oracle delivered an appreciation of only 1.32 percent.”

And:

“To be fair to Mr. Ellison, while his stock price has gone essentially nowhere in the last few years, the overall stock market has gone to hell. For the fiscal year ended May 31, 2009, Oracle’s total return was negative 14 percent. But that beat the return on the Standard & Poor’s 500 Index by 19 percentage points. And it beat the S&P Information Technology Index by 14 percentage points.
Still, a conventional stock option is not intended to reward for relative performance, only for absolute performance.
And when it comes to absolute performance for the fiscal years 2008 and 2009, Mr. Ellison shows up as a poor performer.”

Finally:

“There’s no question though, that in the ultra-long term, Mr. Ellison has been a spectacular performer. His company first went public on April 15, 1986 at a price of $0.0772 a share. Had you bought a share back then and held it until today, the value of your investment would have increased 325 times. The equivalent figure for the S&P 500 Index: 3.8 times.
But that’s how he came to be worth $24 billion (not counting the billions in Oracle stock that he has already sold). That is not justification for all the more recent largesse.” (My emphasis).

I’ll just end by reposting what I wrote last year. There’s no argument to be made that Ellison needs one single share of additional stock in Oracle to keep his interests aligned with those of shareholders:

“Do I think Ellison’s 1.15 billion remaining shares aren’t enough to align his interests? Do I think he doesn’t have a long-term interest in Oracle’s success? And do I think there’s much chance that Ellison might bolt, for say, Facebook?

No, no and no.”