Layoffs at large software firms - Fact or Fiction?

Did SAP & Oracle cut loose staff?There have been a number of web sites reporting planned or executed layoffs at various software firms.
Written by Brian Sommer, Contributor

Did SAP & Oracle cut loose staff?

There have been a number of web sites reporting planned or executed layoffs at various software firms. Some of the rumored layoffs are supposed to occur at venerable firms like SAP, Oracle, Infor and others.

Seeking Alpha discussed a number of these cuts including others planned or executed at leading IT analyst firms.

The Enterprise System Spectator reports layoffs of around 8000 at Oracle, 300 at SAP, etc.

I put in calls to a number of different sources to validate these figures. From a senior SAP source, I was told that the company made a small number of cuts in the U.S. and Canada. The figure, this source said, was in the neighborhood of 100-120 personnel and that these cuts reflect further elimination of post-merger synergies resulting from the Business Objects acquisition. For an employer with over 50,000 personnel globally, a cut of 100 or so personnel is not significant to the bottom line (although it is very significant to the people involved).

As to Oracle, I've reached out to a couple of sources including their PR firm. I've received no confirmations on any cuts there. The web traffic on Oracle cuts has been heavy but no official count.

With Oracle, we should look at this company carefully. Oracle has made an extraordinary number of acquisitions the last few years. In each of the acquired firms, there are back office and other personnel that are going to be redundant with those already in place at Oracle. Many of these personnel are cut loose right after the deal is consummated. Other cuts will occur over time as some functions, skills, etc. take time to transition. I would expect Oracle to shed a number of positions from every acquisition and this molting process could take up to 24 months after deal closure to occur. That said, any RIFs going on today could be due to additional culling from prior acquisitions.

The economy, obviously, is going to be a factor in layoffs. Oracle's Safra Catz recently said "When you combine our product strength with our financial strength already delivering the highest margins among our peers and nearly twice as high as SAP, we believe we are well positioned relative to all of our competitors." (source: Oracle 11/2008 earnings call). It's really hard to maintain those kinds of margins unless Oracle:

- keeps headcount very lean - has extraordinary internal processes that operate at world class levels (e.g., first quartile efficiency and effectiveness) - eliminates all redundant spend - centralizes wherever possible - enforces great discipline in pricing and sales - etc.

A down economy is going to put more pressure on Oracle executives to maintain fat, healthy margins when the economy causes clients to defer signings, cancel purchases and reduce deal sizes. Oracle can expect cost of sales to increase, average deal size to decrease and deal margin to decrease. Oracle must reduce its costs to maintain margins or Oracle must sell additional value-added components (e.g., services, acquired products, etc.) to get total deal size back up. The economy will likely hurt margins as Oracle will need to respond the customer issues above and the pricing strategies of economically challenged competitors. This may accellerate additional layoffs.

Managing headcount is one method Oracle can control costs and maintain margins but it's not the only one either. When you listen to Oracle's earnings calls, it's clear the firm is looking at every aspect of their organization to protect margins. They are using a disciplined approach to earnings that makes Wall Street happy but doesn't win any warm and fuzzies from tech employees at Oracle who find themselves on the wrong end of a consolidation or cost containment decision.

After reading the postings and comments about Oracle cuts, I am fairly convinced that Oracle is cutting loose some people. I am not convinced as to the size of the cuts. If a 10% cut (8000 out of 84,000 employees) does/did happen, that's a big, material number and one Oracle must own up to.

I'm still waiting for a confirmation.

**************************************** UPDATE

The Industry Standard today published their take on the layoff rumors. They took the reporting to an additional level of depth by looking at the sums that Oracle has reserved for severance for workers in acquired companies (e.g., BEA & Hyperion). They compared those amounts to the monies that Oracle has already expended. One likely conclusion from their homework is that Oracle cuts may come in several smaller waves and not one big cut.


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