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SAN JOSE, Calif.
—
Oracle
may not have much experience selling hardware, but the
giant
Redwood City, Calif.
, software company is counting on turning
Sun Microsystems'
business into a profitable operation by taking the same
tough-minded approach that succeeded with dozens of
smaller acquisitions in the last five years.
While
executives say they're focused on building high-end
computer systems that will improve the performance of
customers' data centers,
Oracle
Chief Financial Officer
Jeff Epstein
minced no words as he described the financial strategy
behind his company's
$7.4 billion
acquisition of Sun.
"
Oracle
is very good at saying 'no,' " Epstein told
Wall Street
analysts just hours after Wednesday's announcement that
Oracle
had completed its purchase of the financially struggling
Santa Clara
computer-maker.
Oracle
intends to shrink Sun's catalog — by trimming numerous
variations of similar products and services — and halt
Sun's practice of filling special orders for
unprofitable systems with unusual features.
Some
customers may not get what they want, Epstein
acknowledged. "We don't want to sell products that
we lose money on."
In all,
Epstein described a number of ways in which
Oracle
plans a more hard-charging approach than Sun, as it
tries to reap
$1.5 billion
in annual operating profit from a business that posted a
$2.2 billion
loss in its last fiscal year.
In
addition to focusing on high-end systems with higher
profit margins, Epstein said
Oracle
plans to standardize a myriad of back-office systems at
Sun, such as purchasing and human resources, while
streamlining its manufacturing process and hiring an
army of new sales people who will be paid more for
selling higher-margin products and services.
Those
moves, from a playbook that
Oracle
has honed while carrying out 60 acquisitions since 2005,
will make the new operation profitable without laying
off thousands of workers, Epstein said.
Oracle
CEO
Larry Ellison
said Wednesday that the company will hire 2,000 new
engineers and sales people, while laying off about
1,000.
Analysts
said it will take some time to know if
Oracle's
strategy will work, since the company provided few
financial specifics. But some said
Oracle's
ideas make sense.
"It's
definitely do-able," said server industry analyst
Jean Bozman
of the IDC research firm, referring to
Oracle's
plan for streamlining a Sun manufacturing and
distribution chain that had become unwieldy over the
years.
Epstein
said
Oracle
will reap considerable savings by building systems as
they are ordered and shipping them directly to
customers, instead of building them in advance and
keeping a sizable inventory in warehouses. He added that
Oracle
will let independent distributors assume the cost of
keeping inventory on hand.
Oracle
also plans to cut costs by automating Sun's customer
support, using email and the Web to cut down on call
centers staffed with expensive human operators, Epstein
said.
Meanwhile,
Oracle
plans to focus its marketing and sales efforts on
higher-margin products and support contracts — a
familiar strategy for
Oracle
, which draws large profits from software maintenance
and license renewals.
While Sun
shared profit with third-party distributors that sold
many of its products, Epstein said
Oracle
will sell directly to its largest customers, which buy
more high-end systems. And where Sun paid commissions
based on total sales, he said
Oracle's
sales people will earn commissions for selling the most
profitable products.
"They're
going to figure it out pretty quickly," he said.
"And we think they're going to sell a lot more of
the high-margin products."
Oracle's
sales force will face stiff competition from
IBM
and
Hewlett-Packard
, which have been aggressively wooing Sun's customers in
recent months. But analysts say Sun still has a strong
base of customers using its high-performance Sparc
servers.
Sun
"has a loyalty base in the datacenter, much like
Apple has with consumer electronics," said
Laxmi Poruri
of
Primary Global Research
. "And this is where building higher end servers
will probably increase margins" for
Oracle
.
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