Interviewee: Mark Hurd Position: President Company: Oracle Channel: CNBC in Europe Date: 22/10/13 Time: 08:32 CET Duration: 15 Minutes 05 Seconds

Transcription

1 Interviewee: Position: President Company: Oracle Channel: CNBC in Europe Date: 22/10/13 Time: 08:32 CET Duration: 15 Minutes 05 Seconds Interview with Well, despite the missing revenue forecasts last quarter, US software giant, Oracle, confident it can post growth across software and cloud computing for the full year. Today the company is unveiling an agreement with BT here in the UK to invest in its HR & People Management software, a cloud system that Oracle hopes will compete with rivals SAP and Workday. But how are rumours that the company s President could be in the running for the top job at Microsoft affecting the outlook for Oracle? is with us, the President of Oracle. Quite an introduction, Mark; Good morning to you. Let s just put Microsoft to one side for a minute because I want to talk a little bit if I can about the deal today with BT. It s a multi million contract in the HR space. Talk to us a little bit about how the marketplace for corporate IT is changing as CIOs and CTOs are becoming a bit more cost conscious. Well, I think they ve always been cost conscious but I think you re right, Geoff, I mean, customers today want to do two things at the same time; they want to be careful with their money, careful with their investments, if you will, save money, at the same time it doesn t change the fact that they want to innovate. When you look at what companies need to do today, most of their business is about people, people that work for them (employees) and customers and there s a lot of investment going into the space of, How do I deal with my customers? How do I deal with my people? The deal you described with BT is one of those big investments by BT and their people and we re excited about it. But we re finding it seems there s a bit of a push-back at the moment from the customer side. I wonder if you could either confirm or deny? Interestingly, we spoke with SAP I think just yesterday and they seem to have let By Design slip away gracefully. Now, this was going to be a multi billion dollar business for them and it s now being morphed into some other suite. Obviously the technology s changing, the data and the cloud are moving things along here, how much of a challenge is it for you just to keep up with what the customers are now demanding as they push back? Well, listen, there s lots of changes going on. If you think about the average age of an application, for example, is, in the US, 17/18 years and if you think of that, subtract 17/18 from 2013 and you get, I don't know, 1997 and you think about all of the things that have changed since 1997; there s the web, there s search, mobile, you can go down to tons of secular changes now that have occurred, that now our customers have to deal with in trying to be able to serve their customers and serve their needs, on top of the macro economic issues. Most of our customers don t have extra money to invest in things, so they have to save money to invest money. You ve also got a lot of applications that, frankly, when they were built, were customised, they were unique. So the three quarters of flat to falling revenue, is that a recognition that you don t have the product in the right place for the customer that wants it or is that about something else the company s not doing? Let me be clear about one thing, you said that a little earlier; we haven t had falling revenue, so we ve had inclining revenue and extra revenue. The last quarter we beat, on the top-line we grew our software business about 7% overall and so Oracle as a company is gaining market share. You described one of our competitor s announcements yesterday, where they had declining revenues, you saw one of our competitors, IBM, last week announced results. So Oracle is gaining share, we re investing about

2 $5billion in R&D, investing a lot of that into the cloud, into applications with social and mobile capabilities and we re gaining share and we re pretty happy with our portfolio and our position. It s interesting to hear you talk about the cloud because it doesn t seem as though you were always on that page and I wonder, even with this deal today, where BT will access the HR software through the cloud. Do you have to ring Marc Benioff from Salesforce.com and say a big thank you for helping the company transition towards cloud computing? Listen, I think if you went back to the origination of the word cloud before there was a term cloud, Larry Ellison had started a company called Netsweep, when at that point in time it really just talked about a software over the internet and Larry started this before, frankly, anybody; so point one. Point two, Oracle has been re-building its applications for the cloud for seven years, re-building everything on a common platform. We are the only company in the industry that has a full suite of applications that runs in the cloud. And one big differentiation with Oracle, all of our applications either run in the cloud, the Oracle cloud, but if you don t want to run in the cloud we ll run it for you on premise. So we re actually giving customers lots of choice with how to deploy their technology. Ellis, in the past though, has been highly critical about accessing this type of software by remote, calling it a nonsense, so there has been an about-turn in his strategy and his focus on cloud, so this is a new wave for Oracle, isn t it, and you re actually managing to catch-up to the competition a lot quicker? Yeah, I think, again, it s just not true. I think Larry thought the term cloud was some great new idea, back to my point about Netsweep, Larry was really the pioneer a common base of software served up over the internet and I think much of that, sort of the theatre in the industry, has been misquoted. Larry s been driving in this longer than anybody and it shows up in the products and portfolio that we have today. Yogi Dewan Mark, going into 2014, is the story a growth story, is it a margin story and how big is Europe a market for you? That s a good question. I think, first, we re all about growth. We ve done a great job from a margin perspective, our margins last year were records for the company. So we ve done a good job, I think, in terms of managing our expenses, managing our costs and producing increasing margins. We want to grow out; we ve grown in Europe, we ve grown our sales force, we ve invested with all the things I m sure you talk about every day and in Europe, we ve actually hired in Europe, we ve grown our organisation in Europe. We knew very well that going into a macro, as you see in Europe, you may not see overall IT growth but our belief was so strong in our portfolio and our capabilities, we simply wanted to get in more deals and so we ve actually grown our sales force significantly in Europe, 50/60% over the course of the past two to three years, so that we can participate in more of the market. Carolin Roth It s interesting, that s also what I heard from Tartar Consultancy when I spoke to the CEO just recently. But I want to talk about another region because you ve previously warned about the impact that the slowdown in the brick country s had on IT spend. Now, when we talked to SAP yesterday I asked them about this, because they d previously warned about that too, but they said, We re now seeing a reversal on the fortunes of China and it s now one of the key growth drivers. Did you witness that reversal as well? As I mentioned earlier, we grew our software business 7% last quarter, I think I saw their numbers were negative five last quarter, so I don't know, I haven t delved into their regions to see where they got growth by region. We had, last quarter, I ll speak about that, over double digit growth in US, we returned to 5/6% growth in Asia, we saw a reversal in Brazil, which had material growth for us, but let s face it, the BRIC markets have been the source of a lot of growth over a long period of time for the IT industry and you re not seeing that same level of growth in those BRIC countries that you were perhaps six/seven years ago. That said, those countries have tremendous sources of overall growth and we re investing into them.

3 Carolin Roth Just how damaging is the US shut-down really? Because the analysts, economists at this point seem to disagree whether it s going to be a lasting impact, whether it s going to be a very tiny temporary impact of maybe 0.2% on fourth quarter growth. What does it mean for your business? And when you say the US shut-down, you re talking the government shut-down? Carolin Roth Yes. Okay. It s too early to tell. I mean, the fiscal year ends at the end of September, we ve just come out of what you ve described. I think it s probably too early to tell and since it s a current quarter for us, I won t do any prognosticating. I m curious about just how competitive the market is because if you look at how people used to access software, they used to spend a lot of money buying these packages from companies like yours, now the cost is down because they can access them from the cloud and there was a significant change in the cost base for many companies as a result. But just how competitive is it now, getting on pricing, purely on the cloud? Because this has to be the next wave, we ve got so many companies going into this space, so we re starting to see cheaper and cheaper packages for companies accessing this type of software. And I must say, I always get the question about how competitive the industry is; I cannot remember a day in my 30 years in the industry that it hasn t been competitive, so it s always been competitive, it continues to be competitive. That said, the real driver of the cloud is not pricing; it s really the speed of provision and capability, instead of a long roll-out it s now like you get access to software quickly. I also get a standard piece of the software that gets now updated and driven by the company as opposed to me and this is a big trend you re going to see in the IT industry; is customers trying to shift work from their IT budget to the company s R&D budget, and that s what s very attractive about the cloud. The cloud isn t more flexible, it s actually more rigid; you get one copy of the software, every customer uses roughly the same version of the software but I can provision it quickly, I get access to it and the company that I m buying from does all the work and all the updating. And it s easier to sell to shareholders, saying, It s R&D, we re investing in the future, it s not capital, it s not an expense on the balance sheet. You get a change in the way the expense shows up, it can show up as OpEx as opposed to CapEx and customers can do what makes sense for them financially. So have the head-hunters been on the phone asking you whether you d like to come and work for Microsoft? Listen, I m very happy at Oracle, I plan on going nowhere. So that clearly is the answer that s pre-prepared and you re going to give us. But let me ask you, Oracle s been a great place for you. I mean, you ve had a great career anyway, when you look through where you ve worked in the past, but wouldn't it be great to take Microsoft by the scruff of the neck and turn it back into the growth company that everybody wants it to be, that it once used to be seen as? Because everybody s attached that tag to it, that elephants can t run; you d be the right person to change that, wouldn't you?

4 It is a great place to be at Oracle, we re in a great position right now and that s where I m going to be. You could re-claim the mantle as the Darling of Wall Street if you took this job and turned Microsoft around, couldn't you? Sir, let me ask you this; Microsoft s trying lots of things, it s a huge business. I mean, in a certain way there is an inertia that I think comes with every company when it gets to scale, just looking at the revenues of your rivals, Workday; revenue up 71% on the comparative quarter, sales force up 31%, and so on and so forth but they benefit from a statistical anomaly because they re small; they do a few deals and that looks great in terms of the percentages. But when you look at a Microsoft, it s so big that it s hard to work out what you d actually do to move the needle. Would it be cloud? Would it be data? How do you change the dynamic or the market view of a business of that size? That s a great question. I spend all my time on Oracle and so that s what consumes me day-to-day and Microsoft needs to work on their own business. Sir, let me ask you this; Oracle is in the software space and you re in the hardware space and at different times the cycle flatters one or the other and it has been challenging, I think, on the revenue line, in spite of what you ve said in terms of the hardware business, is it time for Oracle just to exit hardware and think about just dominating or focusing on the software story and really taking it to SAP? There is absolutely zero chance of us exiting the hardware business; and the way we look at the hardware business is a bit different. Remember I told you a second ago about shifting the work from the company s IT budget to our R&D budget? We try to integrate the hardware and software together, if you will, create a system, we call it an engineered system, that actually optimises the software that can give you extreme performance and extreme benefit in TCL, that part of our hardware business has been exploding with growth. We have shed the hardware businesses that were acquired from Sun that frankly didn't have intellectual property that differentiated Oracle. Oracle s all about IP that s differentiated, that gets a better answer for our customers. We ve shed those products, we ve invested into these engineered systems and we ve had extreme growth and we plan to continue our investment and I won t use the word dominate but be very popular in the market. You invested in Taleo, I think that s how you say it, about 18 months ago and this was an HR software system, did that get you this deal with BT today, was that how you saw this growth? Well, Taleo is a recruiting application, it s the ability for you to look at all the people. When you get to big companies, like, for example, BT has 90,000 employees, if you take Oracle, we have 125,000 employees, you know, let s say you had just 10% attrition, we d lose 12,000 people a year, let s say were growing, as we are, we may have to hire then 15,000/16,000 people in a year, we have to interview 50,000 people perhaps to fill those jobs, we may get 100,000 resumes. The process of organising all that, to understand it, to understand how to source, how to pay, that s what Taleo as a process automates. Now, it s very important that that recruiting process be integrated with your core HR process and so that s what we ve done; we ve, if you will, fused together a complete portfolio of applications that do learning, that do recruiting, they re social enabled, they re mobile capabilities and so being socially ready, mobile ready, big deal. The reason I asked that question is because I wonder whether acquisitions are integral to your future strategy then to get the growth? Can you actually do that organically or do you need to apply further software businesses to formulate the sort of growth that you re getting in the business?

5 We do both. So, for us, I told you about our $5billion in R&D investment, we invested a little less than $5billion last year, we ll do a little more this fiscal year but we build and we buy and we integrate. So, for example, our core fusion HR system we built, Taleo we bought and we integrate, so it s a buy/build strategy. Wonderful to see you around the set this morning, thank you so much for stopping by. Thank you, thanks for having me. Good luck with the BT deal., the President of Oracle, with us. Important Disclaimer Although strenuous efforts are made to ensure the accuracy of interview transcripts, Executive Interviews and its associated companies accept no liability for what is said, for any discrepancy between the spoken and written word, or for any errors and omissions. Where doubt arises, please refer to the original broadcast video interview.