Oracle's Ellison steps down as CEO as Hurd, Catz take over

Oracle's front man will become CTO and hand off to Mark Hurd and Safra Catz as co-CEOs. Oracle delivers another shaky quarter.

Oracle's sometimes bombastic frontman, CEO Larry Ellison, is stepping down from leading the company and handing off to now co-CEOs Mark Hurd and Safra Catz.

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Ellison will become chief technology officer and executive chairman of the board. Jeff Henley, Oracle's chairman for the last decade will be vice chairman of the board.

For the most part, Catz and Hurd were running the company. Catz oversaw manufacturing, finance and legal and still will. Hurd, responsible for sales, service and verticals, will have the same role. Software and hardware engineering will fall under Ellison.

Ellison said:

The three of us have been working well together for the last several years, and we plan to continue working together for the foreseeable future. Keeping this management team in place has always been a top priority of mine.

On a conference call, Ellison reiterated those comments:

Mark and Safra have done a spectacular job and I think they deserve the recognition of their new titles. I'm going to continue to work with Thomas Curry in software engineering and John Fowler in hardware engineering and Ed and Mark and Safra as I have exactly in the past. So I'm going to continue doing what I've been doing over the last several years. They're going to continue what they've been doing over the last several years so they deserve the recognition. They deserve the CEO title. And I'm happy that our Management team continues forward. As a team.

Some analysts would disagree with the working well given Oracle's recent quarterly misses. Oracle's first quarter results were also shaky. 

Separately, Oracle reported fiscal first quarter earnings of $2.2 billion, or 48 cents a share, on revenue of $8.6 billion, up 3 percent from a year ago. Non-GAAP earnings were 62 cents a share.

Wall Street was looking for first quarter earnings of 64 cents a share on a non-GAAP basis on revenue of $8.77 billion.

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For Oracle, the first quarter miss was another data point that the company is having trouble pivoting to a cloud model.

Despite the miss---Oracle has missed earnings estimates five out of the last seven quarters---the company touted cloud gains and Fusion. The big question is whether analysts will give Oracle a pass as they wait for the Database 12c upgrade cycle to kick in. The first quarter was viewed as a slow one as new products take root. Ellison also said that OpenWorld will feature the launch of Oracle's database-as-a-service offering.

"Database is our largest software business, and database will be our largest cloud service," said Ellison.

A few first quarter data points:

  • Software and cloud revenue was up 6 percent to $6.6 billion.
  • Software- and platform-as-a-service revenue was up 32 percent to $337 million. Infrastructure-as-a-service revenue was up 26 percent to $138 million.
  • Hardware system sales fell 8 percent to $1.2 billion.
  • Catz said that the total cloud business for Oracle had revenue of $475 million in the quarter, up 30 percent. Catz also said that the fiscal year was off to "a good start."
  • Hurd talked up Fusion and talked down Workday as he noted that Oracle's cloud business is "three times the size."

In a change from previous quarters, Oracle didn't chest thump about hardware. Oracle execs had talked up engineered system sales even when revenue was whacked from a year ago. Oracle had said previously that the hardware business would return to growth. 

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Catz said the following on a conference call with analysts:

  • The cloud transition will continue to ding Oracle's revenue.
  • Hardware product revenue was down 14 percent and support fell 2 percent in the quarter. Tape storage systems got most of the blame.
  • The Micros acquisition is complete, but will only contribute $14 million in license revenue for the second quarter.
  • SaaS and PaaS revenue is expected to grow 39 percent to 44 percent in U.S. dollars.
  • Hardware revenue will be break even to down 10 percent in the second quarter.
  • Total revenue for the second quarter will be flat to up 4 percent. Non-GAAP earnings will be 66 cents a share and 70 cents a share. Wall Street was looking for 74 cents a share.

Do co-CEO structures work?

With Ellison's move to step down as CEO, Oracle will now have a co-CEO structure. Ironically, Oracle is copying rivals SAP as well as Workday. Both of those rivals now have one CEO.

At SAP and Workday, the co-CEO arrangement seemed to work. Bill McDermott and Jim Hagemann Snabe led SAP to strong growth and the launch of HANA from 2012 to 2014. McDermott led sales and Snabe led engineering. McDermott is sole CEO today.

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Meanwhile at Workday, Dave Duffield and Aneel Bhusri split the CEO title from launch and through the company's IPO. Bhusri is not sole CEO.

With Oracle, the management focus and team doesn't change all that much. Catz and Hurd will be co-CEOs yet largely have the same responsibilities.

As Ellison noted, Catz and Hurd will report to the board of directors now not him.

However, Oracle is navigating multiple shifts at once. On the cloud front, companies like Salesforce and Workday got a big jump. Oracle has bought its way into the cloud via acquisition, but it's unclear whether it can retain the customer base in the same way it did licensed software.

As for hardware, Oracle's acquisition of Sun Microsystems hasn't produced strong quarterly results. Oracle wants to be a cloud infrastructure vendor, but faces foes ranging from Dell to IBM to HP to Cisco to Lenovo in the months ahead. Engineered systems are an interesting concept, but appear to be more of a vehicle to sell enterprise software licenses.

Both Catz and Hurd emphasized that Oracle won't change structurally.

Catz:

I want to make sure, we are very, very clear. There will actually be no changes. Okay? No significant changes.

Hurd:

We're pretty flat and in terms of the way we run the place and we want to keep it that way. So I want want to stay close to the action, not get farther away from the action.

Another big theme that'll hit Catz and Hurd will be the spin factor. Ellison is engaging and is the last of a dying breed of tech CEO. Ellison actually says what he thinks and will verbally hit rivals in the face. Hurd took aim at Workday and Oracle human capital management wins on the conference call. 

But Hurd and Catz will have trouble pulling off the Ellison routine---especially as missed quarters start to pile up.

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