Ellison Fiddles While Oracle Burns

Maybe I belong to a different generation, but I have certain expectations regarding behavior and responsibility, especially when other's are your subordinates and maybe even extending to your shareholders.

As a short term holding I've always looked to Oracle (NYSE:ORCL) as a potential addition to my portfolio that relies on the use of a covered call strategy.

While I have often thought of buying Oracle shares, in 2013 I've only done so twice, this most recent occasion being in advance of its earnings report. In hindsight, however, I wish I had done so much more frequently because of how mediocre its price performance has been.

As a covered option trader I like mediocrity, at least when it comes to share price. That's the perfect price behavior to be able to buy shares and sell calls or simply sell puts and collect premiums, sometimes dividends and sometimes small capital gains on shares with relatively little fear of large price swings downward. With little movement in underlying shares you can do so over and over again.

Oracle was truly perfect, that is of course, as long as you ignore the two earnings reports prior to Wednesday evening's numbers being released.

Any company can see its shares tumble after releasing earnings or providing guidance. In fact, it doesn't even take bad numbers to do so. All it takes is for disappointment or unmet expectations to permeate the crowd. After all, the saying "buy on the rumor and sell on the news" got its start in the aftermath of what would seem like paradoxical behavior from investors.

So I think a company can sometimes be excused for what happens to its shares after earnings.

What I have a harder time excusing is the excoriating finger pointing that came on that occasion six moths ago when Oracle shares plummeted in what appeared to be a company specific issue, as its competitors didn't fare as poorly in their reports and didn't suffer similar market misfortunes.

Larry Ellison, the CEO, blamed his salesforce for the quarter. He cited their lack of urgency which allowed third quarter sales to slip into the fourth quarter. I don't really now how Oracle's sales force is compensated, but deferring sales is not a typical strategy.

When the next earnings report was released this time Ellison blamed Oracle's performance on the poor global economic environment, stating "It was clearly an economic issue, not a product, competitive issue," during the ensuing conference call. That, of course, despite the fact, that once again the competition seemed to not experience the same issues. I guess those sales that previously had been said to slip into this quarter remained slipped.

Surely they would show up for the next earnings report.

AS CEO it's probably easier pointing fingers at others. That's certainly the strategy that ruling despots use when there's a need to deflect criticism or place blame to account for the wheat crop shortage.

At the very least Ellison has at least been visible, perhaps too visible. The world learned of his purchase of 97% of the Hawaiian island, Lanai and wondered at that point whether his attention would be diverted from the job of running Oracle, notwithstanding the presence of its President, Mark Hurd.

He was all too visible recently when referring to Google (GOOG) CEO Larry Page as "acting evil" and questioned the ability of Apple (AAPL) to survive in the absence of Steve Jobs.

In a way, perhaps that kind of presence is preferable to the CEO that fails to make any statements following tragic events on one of his cruise liners, not once, but on two occasions. Maybe Ellison won some new customers over with his goodwill.

But here we were, on the day that Oracle was primed to report earnings yet again. For my money, and I did buy shares on Monday, it was inconceivable to me that someone with as much at stake, especially on a reputational level would allow a third successive disappointing report. Whether by slashing costs, financial optics or perhaps by virtue of those sales that slipped from one quarter to the next and then to this one, I was certain that there would be no repeat of the embarrassing price slides the last two times.

Funny thing, though.

Instead of being an integral part of the earnings report and guidance, Larry Ellison was cheering on the crew of Oracle Team USA in a losing effort at today's America's Cup race.

Again, call me old fashioned, but I like to see my CEOs involved in what may have a substantive effect on my fortunes.

The good news is that Oracle didn't have a meltdown after reporting its earnings. In fact shares went higher until reversing the course when the conference call started and the new disappointments were made known, including guiding significantly lower growth than had been expected.

To give Ellison some benefit of the doubt, perhaps he knew that the initial response would be relatively muted and his presence was unnecessary. Besides, was he going to be able to have credibility going back to the well again and blaming macroeconomic business conditions?

Not with me, he wouldn't.

With two days to go until expiration of the weekly options I had sold I expect to be able to extricate myself from the position relatively easily and show a profit for the effort.

In all likelihood I'll also look for any other opportunity to purchase shares because sometimes mediocrity is the gift that just keeps giving. As long as Ellison will be fiddling and paying attention elsewhere, I don't mind an Oracle that simply treads water and stays in place, although I'm sure that the Larry Ellison of old would never have accepted or allowed that kind of an existence.

Herb Greenberg, of TheStreet.com is once again soliciting nominations for the worst CEO of the year. As far as I know the rules don't exclude absentee CEOs. While Oracle is only trailing the S&P 500 by approximately 19% YTD and is certainly performing better than other companies with less than capable management, the shame factor is worthy of your vote.

Disclosure: I am long AAPL, ORCL. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Comments

[scott trader]

Why did that post twice?weird...

[Antoine Hepburn]

This article is so true. It describes the many failings of Oracle and its CEO. It reminds me of this terrific book written by a former Oracle executive, "High tech Planet" which described brilliantly what goes on at Oracle and what is wrong with Larry. Read both, this article and the book, and you'll understand what Oracle is all about and why its prospects are getting dimmer and dimemr

[George Acs]

Thanks.

Seeing from my perspective, though, continues to make it a great covered call play. There's a lot to be said for going nowhere.

I suppose that I should be more grateful, but there is also just something that is so grating. I wish I could put my finger on it.

[scott trader]

Didn't Larry just purchase an airlines and ten beachfront houses in Malibu ....maybe he will star in a home improvement show... I have Larry envy and would love to that well compensated while being so distracted...

[De-bait-able]

I Hurd that Ellison is a lousy judge of management talent.

[George Acs]

You really do have to wonder what it is that he saw in Mark Hurd, other than someone who is willing to cut costs, whether or not it fit in with strategic planning.

I'm actually surprised that Hurd has lasted as long as he has given the bad earnings reports that go back beyond the 6 months that I covered in this article.

[wgolfm]

I would never invest in a company where the CEO is so blatantly self-aggrandizing. He is way over-paid. He embodies the worst in CEO behavior, and I think he really believes his own hype about himself.

[jamesingram32]

@wgolfm Ha! there is truth in what you say. I worked for Orcl( too junior to see him, I saw him at xmas dos, from the crowd. Never got closer than 100yds. He did not walk the corridors). it was a brutal organisation to work for. Awful culture. as above, I'd recommend 'the difference between God and Larry Ellison' to give you an understanding of Larry.

The punchline, btw, is 'God doesn't think he's Larry Ellison'

[George Acs]

You have to believe your own hype to be able to climb to higher and higher levels of outrageous behavior, whether you are a sports hero or an entertainment goddess. There also have be those who stoke the flames and enable or protect.

If Ellison loses the America's Cup it will be interesting to see how deeply he throws himself into the next project, which very well may again be the America's Cup. You certainly don't want to be remembered as having been a loser.

[jamesingram32]

I'm ex ORCL, and I remember the return of Larry. Ray Lane had run the company while Larry partied for a decade. Larry Returned, and embarked on a very successful growth by aquisition with the help of Chuck Phillips. Chuck left the company a few years back, and Ray left soon after Larry returned. I would not bet against Larry, but he is mercurial and flightly, and clearly his interest has gone off to the boats again. I would not be surprised to see a competent figure like Ray step back in as 'president' ( i.e. CEO but with larry keeping the title) again. Perhaps it is harder this time though. Safra has been with Larry a long time now, and perhaps he is just too powerful and long in the tooth to accept healthy challenge from within anymore.

Part of the issue though, is one I highlighted several times about the NOK purchase by MSFT. Software, hardware 2 very different games, and if the king of aquisitions ORCL cannot make SUN work, MSFT are pretty much guaranteed to fail with devices, even with 3200 wonderful finnish engineers added to their ranks.

As far as ORCL and me, I moved on a while ago from the shares. and I think there are more exciting places to put your money, that are not as risky.
Oh, one last thing to bear in mind.
You say ' it was inconceivable to me that someone with as much at stake, especially on a reputational level would allow a third successive disappointing report. '
Here is a story from a little before my time.
So, a large business software company, which was then basically a largish american relational database company, with some successful BI software as well, had a major deal that the London office were trying to close with a major British Telco. The chair of this telco was at the meeting, and expecting the CEO of the software company, who the brits had brought in to help close the deal. The CEO did arrive...at the building, in the limo, but never got out of the limo, and did not turn up to the meeting, which caused the competitors to get the deal instead. Why did he not leave the lime? The story goes is that he was busy with an escort and even though he had a quarter of the company in shares this is where his mind was. So, I would not bank on a CEO doing the right thing for a company just cause they are a big shareholder, at least not short term. In the medium to long term, he will do the right thing. He is that determined, and intelligent, and...ruthless

[George Acs]

It wasn't my point that the size of Ellison's holdings might be a powerful motivator, but rather the size of one's ego.

Whether he is involved in daily activities or not, he is still widely perceived as being in charge and is seen as the embodiment of Oracle.

A flailing stock price and successive earnings disappointments don't reflect well upon someone who has demonstrated in the past that appearances are quite important.

[jamesingram32]

yeah, but when Oracle very nearly went bankrupt in the early 90s, Larry had the same sized ego as today, and for the next 10 years was known as 'Elvis' as he was never seen, and Ray ran the business, turned it around, and grew it into a DB and business Applications and BI company.

Also, the guy sat in the limo getting a blowjob had a big ego as well, but that did not stop him letting a major deal fall through. During that 90s decade, as Larry built his reputation as a leading boat race team owner, everyone in the business know he had nothing to do with the business of Oracle. He has had a period of being heavily involved again, and is quite capable of leaving without any damage to Oracle. In terms of the living embodiment of ORCL, yes, he represents the sales side of ORCL, I would not say he represents the technical side. I would say the technical side is almost separate from the sales, and RCL always had amazing techies, not least of whom were the mormons who have had a big impact on many DB companies, but esp Oracle. It's almost like 2 companies, Sales and technical.

Oh btw Larry doesn't give a fig about the perceptions of you or I on his performance.
Read the book 'the difference between God and Larry Ellison' Might be a bit dry if you're not from the industry, but it will give you a real insight in the man, the company, and the industry

[George Acs]

The title of the book may say all that anyone needs to know.

Egoism doesn't necessarily mean that you care about what other people think. It's about what you believe is being transmitted about yourself and how that helps you achieve your goals and objectives.

To believe that Larry Ellison would have the slightest interest in what I think about him would itself be incredibly egotistical. I have no such illusions.

[Welju Grouv]

Sept 20, 2011
Q1 Hardware product revenue: -5% (-11% in constant currency)
Guidance for Q2: "Hardware product revenue growth is expected to range from flat to negative 5%."

Dec 20, 2011
Q2 Hardware product revenue: -14% (-14% in constant currency)
Guidance for Q3: "Hardware product revenue growth rate -- growth is expected to range from negative 4% to negative 14% in constant currency or negative 5% to negative 15% in U.S. dollars, and that does not include the hardware support revenue."
"We think the hardware business could turn around and show growth as soon as Q4 [sic!], and we'll definitely go. I think I'm very confident we'll show double-digit growth next year [sic!] because we'll have all of these new products out ..."

Mar 20, 2012
Q3 Hardware product revenue: -16% (-16% in constant currency)
Guidance for Q4: "what we're seeing for next quarter is hardware revenues a little more -- basically, the low end of my range would be somewhere about where it is this past quarter, Q3, to potentially as much as $100 million to $110 million above where we closed this past quarter. That would be somewhere between I guess $870 million, let's say, to as high as $980 million."

June 18, 2012
Q4 Hardware product revenue: -16% (-13% in constant currency), $977 million.
Guidance for Q1: Hardware product revenue growth is expected to range from negative 12% to negative 2% in constant currency and negative 17% to negative 7% in current rates.

Sep 20, 2012
Q1 Hardware product revenue: -24% (-21% in constant currency)
Guidance for Q2: "Hardware product revenue growth is expected to range from a negative 18% to a negative 8% in constant dollars and reported currency."

Dec 18, 2012
Q2 Hardware product revenue: -23% (-23% in constant currency)
Guidance for Q3: "Hardware product revenue growth is expected to range from a negative 10% to flat in constant and reported dollars."
Guidance for Q4: Hardware sales will increase in the fiscal fourth quarter which ends in May, Ellison said. [sic!]

Mar 20, 2013
Q3 Hardware product revenue: -23%
Guidance for Q4: "For the current quarter, hardware product revenue will decline 13 percent to 23 percent in reported dollars and from a negative 22% to a negative 12% in constant dollars." (nach"will increase" vor drei Monaten)

Jun 20 2013
Q4 Hardware product revenue: -13% (-12% in constant currency)
Guidance for Q1: "We expect the turnaround really to begin in Q1. [sic!]" "Hardware product revenue growth is expected to range from a negative 6% to positive 2% in constant currency and as a result total revenue growth on a GAAP and non-GAAP basis is expected to range from 3% to 6% in constant dollars."

Sep 18, 2013
Q1 Hardware product revenue: 14% (-13% in constant currency)
Guidance for Q2: "Hardware product revenue is expected to range from negative 9% to positive 1% in constant dollars and negative 11% to negative 1% in reported dollars."

[George Acs]

Not so good.

[Moon Kil Woong]

Ellison's not that bad as a CEO. The server market is getting roiled by cloud computing and the whole electronics industry along with PC sales are lackluster at best. If it wasn't for the Bernanke put and QE dump all tech stocks would be in the dumps. I actually6 respect Oracle's lack of stock pumping here.

Oracle is bright enough to have stable sales and a decent ecosystem selling to the likes of Salesforce who basically is nothing but a server distributor for dumb salespeople who don't know they are buying an overpriced Oracle server (and only part of one) at hugely inflated prices. Or making people buy accounting and ERP systems which they have to both pay for both the hardware as well as maintenance and upgrades.

I am actually astounded at how bad of prices their "customers" pay for their stuff. No wonder they sell to professions that are not IT. You have to be completely clueless and dependent on them to buy most of their products, and yet, they still sell tons of product every year.

It's not their sales that is to blame. Sales is already upselling their solutions. It's that the weak economy is making people a bit more savvy about how much they are paying their solutions vendors these days.

[George Acs]

On the one hand you cite how clueless people are that are buying products from salesforce.com and then how savvy people are for being more demanding in their price points, thereby hurting Oracle.

That really does sound a bit like trying to have it both ways and being an apologist for Oracle's lack of performance and serial disappointments.

[bg6638-2]

Larry Ellison pales in comparison to the lack of accomplishments which M$ft's Steve Embalmer can lay claim too!

[TakeFive]

bg... Thanks, I needed a good chuckle.

[George Acs]

I think that if I were stranded on an island, let's say Lanai, I would put my faith in Ballmer before turning my back on Ellison.

[jamesingram32]

Ha! true. That has, in fact been played out in real life. When a fellow boat racer was in peril of dying, and Ellison was in a position to turn his boat round and save his life, what do you think he did? He carried on to try and win the race, and left it to other boats to come to the rescue.

[TruffelPig]

Correct the Cisco in the last sentence to Oracle please.

[George Acs]

Thanks. Who knew that people actually read to the end? The Editors have made the correction.

[Giorgio il Buffone]

George,

We only read the beginning and end of articles.

Saves time.

[George Acs]

That's a strategy that I can wholly endorse, although if time is short, I might consider skipping those too.

Metric? You want a metric to define "when time is short?" OK, any minute that has 60 or fewer seconds remaining.

[MLP Trader]

I'll always remember Larry fondly for what he did to my kids' elementary school:

http://bit.ly/19h68Wd

[enphlight]

You should read the comments.

[rubicon59]

If you can afford to live in Portola Valley, your kids can't be doing too badly.

[TakeFive]

enphlight.... Indeed, a few gems there.

[samuraitrader]

Ellison blames the sales force? Another sign of a great leader. Not!

[George Acs]

The comments from analysts at the time of the March 2013 earnings report was that from all appearances Oracle's miss was a company specific problem, taking away the use of the economy as an excuse.

What are you going to do? Blame management? Clearly the sales force had no incentive to make sales