Oracle CFO looks to long term for growth
Thursday October 24, 5:10 am ET
By Ben Hunt
Oracle is up against it. Even the world's second-biggest software company is feeling the full force of some of the toughest market conditions ever experienced.
With the technology sector arguably hit harder than any other, Oracle last year recorded its first fall ever in revenues.
Jeff Henley, chief finance officer, believes it is as bad as it has ever been. "This is right up there with the 1930s," he said.
Depressingly, Mr Henley cannot see it getting any better in the short term as corporate scandal and economic uncertainty continue to undermine any signs of a recovery.
"I think the big worry is that everything is so negative and there's so much hand-wringing that it all feeds on itself. The only thing that has really held up in the US is the consumer. And the worry is, what happens when that starts to go south?" he asks.
When things look bad, politicians and the business community usually look to history for guidance but this time, Mr Henley believes, the world could be entering new territory.
"This will have been two years by the end of this calendar year, and that's a long time, based on history. But history doesn't always repeat exactly, so we don't know and that's the reason that we're being real cautious," he said.
The technology industry has had to adjust to life after the high-rolling late 1990s, when spending was driven by the take-up of internet- related technologies and Y2K compliance.
"In the 90s there were companies that were fat, dumb and happy saying 'Gee, that's going to solve everything'. So there were IT projects that weren't well-conceived. Now there's a backlash. People look back and say, 'Gosh, we've spent all this money. Where's the return?' " Mr Henley says.
While companies are still working on IT projects, he thinks that these projects are much more considered, and tend to be low-risk, high-return.
Nonetheless, Mr Henley believes that once the industry finds the bottom, Oracle can return to acceptable growth rates of 10 to 15 per cent in database software, where it is the market leader, and 15 to 20 per cent in enterprise application software - if it can gain market share from its rival SAP, the European software giant.
But it will not be easy. Corporate America has a lot to do to win back the trust of consumers and investors - witness the fact that Mr Henley himself thinks that there are probably more scandals to come.
"It's not going to happen quickly. At some point everyone gets tired of scandal, but apparently we haven't had enough yet. Everyone wants to keep talking about it."
This, he says, is good, as open discussion will help bring out the important lessons that need to be learnt before the abuses can end.
He advocates a combination of new regulation and tough action on those who have broken the law and says that people will be more careful if they think they stand a good chance of getting caught and going to jail.
It is hard to underestimate the impact the scandals have had on corporate America. Almost no company has been left untouched by the fall-out of the Enron and WorldCom scandals.
Even Oracle was criticised in some quarters for maintaining its relationship with auditor Arthur Andersen long after the Enron scandal broke. It finally sacked the troubled firm of accountants after it became clear that Andersen's precarious position could effect Oracle's 2001 audit.
Despite his harsh words for those who have broken the law, Mr Henley defends Oracle's loyalty to Andersen robustly. He claims that Andersen served Oracle well, an opinion that is reinforced by a review of its books by replacement Ernst & Young, which showed nothing untoward.
"[Andersen] should not have gone down. Clearly there were individuals that did something wrong. But I guarantee you, that could happen at KPMG, at PwC. So what are you going to do, shoot them all, kill every firm and let government do the accounting?" he asks.
Oracle's determination to practise good corporate governance extends to the company's view of expensing employee share options, which is another political hot potato, particularly in Silicon Valley.
Mr Henley says that Oracle has long accepted that options "bear an economic cost", and the company would consider expensing them voluntarily.
However, he also believes that the way the cost of options are calculated has not yet been resolved, and intends to play a full part in the debate that shapes that decision.
Link:http://biz.yahoo.com/ft/021024/1033848738106_1.html |
