Why Oracle Should Leave Europe: A Look at the Numbers

I said in my post on November 12 Larry Ellison should ask himself whether it is even worthwhile for the new Oracle (ORCL)/Sun (JAVA) combination to do business in the information technology (IT) backwater that is the European Union (EU). Why go through the hassle of dealing with EU regulators when it appears the return on investment is so low? My suggestion is to just consummate the merger without EU approval and don’t do business in the EU.

A bunch of Euroblatherers on seekingalpha.com commented that my idea was anti-Europe bashing. One even criticized the quality of my photograph, which I love because it is a snapshot taken by a friend in front of an old restaurant on Helsinki harbor. I love to go to places like that in Europe and look at the old cathedrals and decrepit palaces. It’s just that the over-regulated EU is an increasingly bad place to sell enterprise software and IT. Look at the numbers.

According to its 10K, Oracle received less than 15% of its revenue from the EU big three—the UK, France and Germany—during fiscal 2009. And that’s down from 16% in fiscal 2008. Given those countries’ contracting economies, that number is bound to keep dropping. Because the revenue is based on GAAP accounting, it would take some work to figure the real compare (e.g., would need to factor in the percent of business BEA and other acquisitions did in the EU) but maybe—best case and counting Slovenia and Wexford and all those other great bastions of industry—Oracle gets 20% or 25% of its revenues from the IT consumers regulated by the non-tech-savvy bureaucrats in Brussels.

According to its 10-K, Sun on the other hand gets almost as much revenue from Europe (that's not the same as EU but that’s the best number we have) as it does from the U.S. And a third of Sun’s U.S. revenue comes from Avnet. In fact, while Sun revenue in the U.S. dropped 25% in the last few years, it only dropped 15% in Europe. The trendline of Sun’s EU numbers vs. the U.S. numbers should forever be considered a good leading indicator of failure in the IT market for all companies. Clearly when everyone in the U.S. is bailing out of a company’s IT products and services as with Sun, but the IT consumers of the EU haven’t got the word, sell your shares.

As with the Oracle numbers, there might be some falling/rising/falling dollar issue in those statistics. But I bet it wouldn’t take a lot of analysis to figure out that that revenue—whatever the apples-apples revenue numbers are—is nowhere near as profitable as doing business in real markets where politicians don’t try to regulate the shape of fruit. For example, it looks like half the employment of the combined company would be European even though only 25% of the revenue comes from there. If Snoracle gets out of the EU, that salary expense drops to the bottom line.

Comments

[User 488194:]

maybe oracle only should sell in Malta, so won't have regulatory problems

Nov 13 06:38 AM

[MyOracle:]

Fair enough Dennis, the reference to the photo was a cheap shot and I should really have concentrated on the argument which has more holes than a Swiss cheese. Although given your obvious disdain for Europe I suppose you'd be one of those who'd advocate calling it "Stars and stripes cheese" in a similar way to calling French fries "freedom fries" when Europe stood up to the WMD US justification for the invasion of Iraq. Well the US anti-trust approval of the Oracle/Sun bid has just about as much validity as the war did. That was all about America securing it's energy resources by hook or by crook. This "war" is about America securing it's monopoly in the hi-tech sector. And guess what, the tech-savvy European Commission is on to it. Just because Larry greased the right palms in the DOJ doesn't mean you need to throw all your toys out of the pram when the rest of the world doesn't allow the US the technology monopoly it wants. As for the suggestion that Oracle pull out of Europe and lose 25% revenue rather than divest a MySQL whose revenues are infinitely smaller and primarily European based; well it's so silly it doesn't merit comment.

Nov 13 09:06 AM

[EU guy:]

Great idea Dennis. I think it is valid for most US IT companies. And can you send it to GM, Ford and Boeing too? And to all the others? (please don't forget Hollywood) I hope you started a hype. I really do! And I promise we'll take care for the old city views, so you can still visit us as tourists.

Nov 13 09:17 AM

[navodarc:]

Actually Malta is part of the EU now. Well I believe Europe in quite important for Oracle as this is the field where the business applications war is being fought. Oracle can not afford to neglect this, especially as their are growing their business applications revenue numbers in Europe even in UK, France and Germany, despite the total numbers are going down in those. In addition, not supporting countries in EU would be a message unlikely to be accepted by Oracle's global clients, who would certainly reconsider their vendor strategy, so Oracle would fire into its own feet.

Nov 13 09:20 AM

[edgewinds:]

Great Idea!

Nov 13 09:56 AM

[jack dee:]

I am pretty sure Dennis does not really think Oracle should pull out of Europe , he is merely venting his frustration at the EUs continued bullying of US tech companies.

there are almost zero wins for EU tech, they just fail fail fail, Neelie answer is to attack, fine, and litigate US companies into the ground. The fines are providing direct funding for her operations.

The good news is that her term is up, and there is no reason to think we will have another nasty self serving ego maniac like Kroes .

On the otherhand, they are getting used to "taxing" US companies, perhaps the US shoud attack the EUs only jewel, pharmaceuticals, but then SNY is going well and a major holding for me so maybe not.....

Nov 13 01:21 PM

[CAgirl:]

I am thoroughly enjoying your articles and the comments! Keep it coming. Great conversation starters. I find it amusing and even somewhat ironic that these Eurosnobs are so thin skinned. They can dish it out but can't take it.

Nov 13 02:41 PM

[wllmbsl0:]

Let’s face it; if Oracle leaves Europe, than SAP moves in and takes over their business, SAP couldn’t be happier. Oracle is not such a wonderful database that we can’t live without it, I personally prefer Microsoft’s SQL. In article 82 of the EU’s Common rules of competition, it prohibits limiting production, markets or technical development to the prejudice of consumers. Unfortunately, even if Oracle has no intention to get rid of MySql, the EU has to look at what would happen if they did, after all MySql is a redundancy. If they cease production of MySql, all that will be forked or patched would be the last version. Without any more downloads, companies (6 million per Wikipedia) would gradually move off of the free version to some other open source DB. Could you imagine all the software and applications throughout the world that would have to be changed and at the expense and inconvenience of consumers? I’m not sure how a company could provide assurances that they would continue developing open source software, businesses are not charities. I think that the only assurance you have for a continued MySql application is to split it off.

Nov 13 02:58 PM

[CAgirl:]

SAP is so last century. Their sw architecture is overly complex and cumbersome to manage. Enterprises won't just switch to them...the trend now is people are moving away from that model and embracing standards based sw that can scale, is easy to manage, and performs well. The only thing SAP is peddling these days is influence and the EU is their biggest customer. The longer they drag out this charade (b/c anyone who understands technoloy knows their argument is BS), the more disruption and uncertainty they bring to the marketplace. Oracle will ultimately come out a winner in all this. But for now the only people suffering are Sun customers.

Nov 13 06:26 PM

[Highonlife:]

So ...Oracle should take over a business, which generates 50% of its revenues from Europe..and then exit europe because the combined entity would have very few sales in Europe.
Is this the fault of sun or that of oracle?
Now let us hypothesize why Oracle is having issues in Europe. Is it maybe because of its biggest competitor being there? You may have heard of it, its called SAP.
So what should oracle do....should it fight SAP? or should it just concede over the entire continent, which as a combined entity is the largest economy on the planet. oh gee...thats a toughie....

Nov 15 02:38 PM

[ukman:]

Dennis - Eastern Europe & CIS is growing at a faster rate than China. The buoyant economies are there, so ignore Europe at your peril. Once again, I'm thankful that your opinion is a lone voice in the wilderness to be ignored by people who really understand mergers and acquisitions.

Nov 16 04:43 AM

[squawk:]

Re: "According to its 10K, Oracle received less than 15% of its revenue from the EU big three—the UK, France and Germany—during fiscal 2009. And that’s down from 16% in fiscal 2008. Given those countries’ contracting economies, that number is bound to keep dropping.

Dennis - You apparently are not a strategic thinker. You think Larry Ellison thinks as short term as you do?

Nov 17 06:33 AM