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Oracle Outlines Direct-Sales Sun Plan

Oracle (ORCL) will take its first steps to make Sun Microsystems profitable by increasing direct sales to Sun's largest customers, Chief Executive Larry Ellison said.

Ellison spoke at an event for customers, reporters, and analysts at Oracle's Redwood Shores (Calif.) headquarters on Jan. 27, the day Oracle closed its $7.4 billion acquisition of Sun after a nine-month wait. The executive said Oracle would start selling products directly to Sun's top 4,000 customers. Oracle President Charles Phillips said the company would similarly provide technology services directly to 1,700 customers instead of relying on third-party service providers, as Sun had done.

The direct approach is designed to make engineers at the enlarged company more keenly aware of customers' technology requirements, ultimately stemming losses that Ellison in September said amounted to about $100 million a month.Oracle, which has spent $30 billion to acquire nearly 60 companies since 2005, announced in April its intent to buy Sun, which had been losing money and market share after it failed to move quickly enough to embrace lower-cost technologies.

Ellison also sought to reassure users of Sun's equipment and software that Oracle would continue refining its products. After the acquisition plan was unveiled last year, some customers fretted Oracle would let Sun's existing products wither. "It took a while, but Oracle and Sun are now one company," Ellison said. "We want to use our engineering talents not just to build, but to deliver the technology." He added: "The uncertainty of the past is now gone" for Sun customers.

Software-Hardware Integration

Closure of the Sun deal was held up by regulatory scrutiny of the deal by the European Union. The EU dropped its objections to the deal after Oracle, the No. 1 supplier of database software, announced changes to the way it would license Sun's MySQL open-source database software on Dec. 14. EU Competition Commissioner Neelie Kroes approved the deal on Jan. 21.

Oracle plans to combine its database and business applications software with Sun computers based on the Sparc chip and Solaris operating system, to achieve what Oracle says will be higher levels of performance than are possible using other vendors' technologies. Ellison has argued that buying hardware and software from several companies costs companies more than it would to acquire them all from a single vendor.

Phillips said Oracle would increase research and development spending by $1.5 billion in the 2011 fiscal year, which begins in June, to reflect increased investment in Sun technologies. That would put spending at $4.3 billion, compared with $2.8 billion last year. Oracle has forecast an additional $1.5 billion in profit in fiscal 2011 as a result of buying Sun.

In order to jump-start Sun's financial performance, Oracle plans to hire 2,000 sales and engineering staff, while eliminating about 1,000 Sun employees, according to the company. Sun sales staff who stay on will also get raises, Phillips said. Sun has an estimated 25,000 employees. "We're hiring, not firing," said Ellison. "We're not cutting Sun to profitability, we're growing it to profitability."

Competitors See Opportunity

During the event, Oracle executives discussed plans for products in areas including chips, Java software, and virtualization software. Oracle's competitors said they would use the transition period as Oracle and Sun come together to try to peel off customers who are uncertain about the future of products they rely on. While focusing on integrating Sun, Oracle may place less emphasis on other products, such as applications that help companies manage payroll. "Oracle and applications is a bit of a sideshow," says Bill McDermott, president and executive board member at SAP (SAP), the No. 1 supplier of business applications.

By adding sales staff and increasing R&D spending, Oracle is trying to clean up Sun's mess and return its operations to profitability in short order.

Ricadela is a reporter for Bloomberg News and Bloomberg Businessweek in Frankfurt.

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