Safra Catz, Oracle’s President and right-hand person for Larry Ellison, commented on the Sun acquisition, with a slight on Sun’s current management. From New York Times.
Sun is a modern technology company that outsources nearly all the manufacturing, assembly and servicing of its hardware.
We will be able to run Sun at substantially higher margins. first year.
Under Oracle the Sun businesses would be able to achieve operating efficiencies far in excess of what Sun has done to date.
Ms. Catz estimated that Sun’s operations would generate an additional $1.5 billion a year in operating profit, and add 15 cents a share to Oracles profit.
Sun, for the latest quarter (ending December, 2008), had 1.8 billions in gross margin and 21 millions in operating profit (if we exclude “non-recurring expenses”). What Ms. Catz said translated to 375 millions a quarter in operating profit. That’s 354 more than Sun’s current performance. What could she do?
Oracle is not experienced in selling servers and that industry is fiercely competitive. I do not believe Sun’s server sales will increase drastically. Sun probably can contribute to Oracle’s software and service sales, but I would be conservative and keep the revenue part of the equation flat. Ms. Catz will, then, basically cut 354 millions, per quarter, from Sun’s operating expenses: part from its 411 millions R&D and other part from its 916 millions SG&A (selling, general, and administration). Note that Sun’s R&D spend (13%), although high for server companies, is quite similar to Oracle’s (12%) and Microsoft’s (13%).
If you were Ms. Catz, where would you find that $354 millions?
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