$1 Billion: Bad, Good, and Ok

Oracle Corp. announced that its acquisition costs for Sun Microsystems, Inc. will more than triple from its initial estimates to more than $1 billion. Elsewhere, Hewlett-Packard, Co. (HP) unveiled a $1 billion initiative designed to accelerate growth and profitability in its Enterprise Services business. Novell, Inc. also posted its second quarter results, keeping close to $1 billion in cash on hand. 

Focal Points:

• Oracle announced it intends to slice more jobs related to its acquisition of Sun, which occurred in late January of this year. The job cuts will come mostly from employees in Europe and Asia, and amount to additional restructuring costs projected between $675 million and $825 million. Oracle had originally estimated total restructuring costs to be $325 million, and expects charges and redundancy eliminations to occur through calendar year 2011. Oracle has called the Sun acquisition, and particularly the Java programming language, the most important acquisition the company has ever made. Plans for the combined entity are to help Oracle leverage efficiency gains into an integrated systems approach that provides more efficient and stable solutions.
• With HP touting its integration of EDS is ahead of schedule and delivering benefits to the vendor and its customers, the company is aiming to deliver new offerings and improve delivery capabilities. HP announced a new, $1 billion initiative to improve automation and standardization in its Enterprise Services business using the lessons proven in its own internal transformation efforts. The move will significantly reduce its number of global data centers by half, and employ a streamlined set of applications, management frameworks, networks, and supporting toolsets to deliver could-based, outsourced, and on-premises services. Approximately 9,000 jobs will be reduced in this effort, though the company believes another 6,000 new ones will be necessary to drive business and support the business. The company expects for its investment to pay for itself in savings alone by 2013.
• Though the Linux server business grew approximately 20 percent year-over-year, Novell has fared nowhere near as well. In its recently announced second quarter results, the company posted revenues of $204 million, down more than five percent from $216 million in 2009. The company has previously declared its intention to restructure its business and is soliciting offers and considering recapitalization alternatives. Novell's  net income of $20 million, up from $16 million the prior year, is demonstration that the company is working to squeeze the most out of its 3,500 employees and business strategies. The company's cash positions remain strong at $980 million, down just 1.1 percent from the year prior, showing that the company is in no immediate danger.

Experton Group believes Oracle, like many others before it, is seeing that so-called synergies are a lot harder to come by when integrating giant, radically-different business together. A few mere months ago, the firm promised to grow Sun to profitability rather than cut its costs to do so. Sun has already lost many high-profile and workaday talent. Additionally, Oracle's strategies to deliver a tightly integrated hardware/software environment and effectively manage Sun's myriad hardware strategies within Oracle's software competencies remain unclear. IT executives should expect Oracle's past proclivities for eliminating undesired businesses and integrating valued assets into tactics that limit enterprise choice and flexibility to manifest accordingly. While it is still too early to predict casualties with reasonable certainties, IT executives should to evaluate migration options. IT executives should require future enterprise-critical Oracle investments be accompanied by necessary out-clauses and/or penalties should shifts in the company's strategy be determined detrimental. HP's EDS integration has provided the company with significant best practices and technical knowledge. IT executives should expect HP to select relatively heterogeneous target environments as it attempts to automate and modernize its data centers and services offerings. IT executives of enterprises that are HP strategic partners should get HP executives to explain its strategy and roadmap for data center automation, people, processes and technologies and apply elements as appropriate. Other IT executives should try to glean this story from other sources and see how it can be applied to their environments. Despite Novell's inability to radically transform itself from a legacy provider of collaboration and networking services into an enterprise Linux server vendor, the company has done a relatively good job of holding down the fort. Though the company performance is significantly off from its competitors', Novell's existing cash on hand, contract relationships, and intellectual property stack make it attractive to potential suitors. IT executives invested in Novell infrastructure offerings should feel secure with their investments, although IT executives should validate their Novell contracts contain clauses that protect them in case of the vendor's acquisition – regardless of who the buyer is.