Revolving Door
In contrast to Apple’s stunning success, the first calendar quarter of 2011 was a revolving door for other Silicon Valley companies and executives. There were management shifts, shakeups and ousters at Advanced Micro Devices (AMD), Google, Hewlett-Packard (HP) and Microsoft. They were variously aimed at jumpstarting product momentum (AMD, Microsoft), polishing a tarnished image and placating stockholders (HP) and providing an orderly transition of power (Google).
You need a scorecard to keep up with all the comings and goings.
AMD’s board ousted chief executive Dirk Meyer in mid-January after only 18 months on the job. It then appointed Senior Vice President and CFO Thomas Seifert, as interim CEO while the search goes on for a permanent chief executive. Siefert continues as chief financial officer and says he does not want to be considered for the permanent CEO position. This is probably a smart move. AMD’s flamboyant co-founder Jerry Sanders spent 33 years as CEO (1969 to 2002), but everyone who’s followed has had a short tenure.
The challenge for any AMD chief executive is to jumpstart momentum and somehow find a way to gain ground on perennial logic chip front runner Intel and Nvidia which dominates the mobile (Tegra 2) and graphics chip market. AMD’s Opteron dual and quad-core processors and the mobile and graphic chips which it acquired in its 2006 purchase of ATI are all solid offerings. However, AMD’s former CEO Hector Ruiz and Meyer elected to focus on optimizing their chips for traditional notebooks instead of the lightweight mobile devices and tablets that are stars in today’s markets. According to statistics published by International Data Corp., Intel’s share of the PC and server chip market is approximately 81% compared with AMD’s 19%.
AMD continues to shuffle its executive ranks. In February, two senior executives, Bob Rivet, executive vice president and chief operations and administrative officer, and Marty Seyer, senior vice president of corporate strategy, also resigned. In late March the company named former HP executive Mike Wolfe as its new chief information officer. Prior to joining AMD, Wolfe served as vice president of information technology for product development and engineering at HP. Wolfe is now responsible for managing AMD’s global technology infrastructure. Ironically, AMD’s former CIO Ahmed Mahmoud, who departed in 2010, went to HP where he is currently the Senior Vice President of the global information technology group.
HP Still Hurting from Hurd Scandal
HP has also had its share of executive shakeups in 2011. All of them stem from the continuing fallout from former CEO Mark Hurd’s exit last summer. The reverberations have tainted the company’s once pristine image and they are as toxic to HP as the radiation leaking from Japan’s Fukushima nuclear power plant. Hurd left under a cloud of scandal amidst charges of sexual harassment and dodgy expense accounting related to an undefined but inappropriate relationship with a female contract employee. A scant week after Hurd’s departure which included a platinum severance package worth $44M — a group of HP shareholders filed suit. The suit alleges that HP board members are guilty of “gross mismanagement and waste of corporate assets.” They claimed the board put the shareholders’ finances at risk by failing to disclose the charges of sexual harassment against Hurd. It sounds reasonable. What’s particularly galling to shareholders and rank and file employees is that Hurd got rewarded for his bad behavior after he spent the last several years cutting tens of thousands of workers from HP’s payroll.
In January, HP replaced four of its board members and added an additional director to the board. The departing HP board members are Joel Hyatt, John Joyce, Robert Ryan and Lucille Salhany. They are replaced by Shumeet Banerji, chief executive officer of Booz & Company; Patricia Russo, former CEO of Alcatel-Lucent; Gary Reiner, former CIO at GE; Dominique Senequier, CEO of AXA Private Equity and Meg Whitman, former president and CEO of eBay Inc.
The new board members provide HP with diversity and wide ranging experience. By overhauling its board, HP seeks to mollify outraged shareholders and distance itself from the Mark Hurd debacle. This is no easy task. HP launched its own investigation of Hurd’s departure. It will be conducted by CEO Leo Apotheker, the new board members and outside legal counsel. Apotheker has wasted no time assembling his team. On April 18, HP announced that Thomas Hogan, who headed the company’s enterprise business sales and marketing, will leave on May 31 to “pursue other interests.” Hogan’s replacement is Jan Zadak (a former Compaq executive). Zadak is presently the managing director for HP’s Europe, Middle East and Africa (EMEA) operations. In mid-April, HP also appointed Marty Homlish as executive VP and chief marketing officer. Homlish will be responsible for overseeing and leading marketing across the company and will become a member of the company’s Executive Council, reporting directly to Leo Apotheker. Homlish and Apotheker worked together before at SAP AG, where the latter was CEO. Prior to joining HP, Homlish spent 10 years at SAP AG, where he served as the global chief marketing officer and corporate officer, as well as president and CEO of SAP Global Marketing, Inc.
There was also a seismic (though amicable) shift at search engine market leader Google. The company announced in January that Eric Schmidt would relinquish his CEO post in April in favor of company co-founder Larry Page. Page took over in early April and immediately reshuffled managers and the reporting structure.
The CEO change at Google is prompted by the desire to aggressively expand into new markets. Page is going to have to prove himself. Wall Street is nervous. In the wake of continuing skirmishes with leading vendors including Microsoft and Apple and latest and somewhat disappointing financials reported on April 14, many on Wall Street are concerned about Google’s prospects. They question the company’s aggressive spending spree. Months ago Google announced plans to hire 7,000 to 10,000 new workers; hand out 10% company-wide salary increases and aggressively pursue new business. That includes technology expansion into everything from smart phones to social networking to mobile and expensive marketing campaigns.
In its latest quarter, Google reported expenses of $2.84 billion; a 54% increase from the prior year. While revenues in the latest quarter ended March 31 rose by 29%, Google’s stock price has decline by nearly 9% since January when it announced that Schmidt was stepping down as CEO. The decrease has wiped out roughly $12.5 billion from Google’s market capitalization which now stands at $173.09 billion (still one of the best in the industry). Google remains the dominant player in the search engine arena with a commanding 65% market share. Its next closest competitor is Microsoft’s Bing which has about 14% and Bing is linked to Yahoo which has another 16% for a combined share of 30%. Google’s Android mobile operating system meanwhile remains the undisputed market leader with a solid 45% market share; twice that of its nearest rival Apple’s iOS.
“Dog Wars” Android App Bites Google’s Image
Meanwhile, Google faces growing and well deserved criticism by the Humane Society, the ASPCA and animal rights activists who are outraged over an Android application called “Dog Wars.” The video game built by Kage Games glorifies dog fighting and depicts a bloodied pit bull next to the game’s logo on Kage’s website. Humane Society President Wayne Pacelle said in a prepared statement that “Dog Wars” could be used as virtual training ground for would-be dogfighters. Even Philadelphia Eagles quarterback Michael Vick who spent 18 months in prison after being convicted of illegal dogfighting, condemned the Android application. “I’ve come to learn the hard way that dogfighting is a dead-end street,” Vick said in a statement posted on the Humane Society’s website. “Now, I am on the right side of this issue, and I think it’s important to send the smart message to kids, and not glorify this form of animal cruelty, even in an Android app.”
Google ducked the issue for two weeks before it was finally pulled from Android Marketplace. on April 28. This incident also shines the spotlight on a larger issue: as Google further expands into the gaming industry via the number one Android operating system, will profits win out over principles and ethics? To further extend the Android mobile OS and solidify its lead, Google launched the new “Games at Google” gaming unit and they are seeking a Product Manager to fill the post. Let’s hope it top management provides some much needed ethical oversight.

Changes are also afoot at Microsoft. In late January CEO Steve Ballmer announced the departure of 23 year veteran Bob Muglia who successfully ran the company’s very profitable Server and Tools business. Under Muglia’s direction, STB recorded a $1.63 billion operating profit on sales of $3.96 billion in the prior fiscal quarter. Muglia will leave sometime this summer. To date, Microsoft has been mum about his replacement and while the company isn’t saying anything publicly word inside the company is that Ballmer forced Muglia out to accelerate Microsoft’s cloud strategy.
Whether or not that’s the case, Ballmer should speed up the search for Muglia’s successor and plug the gaping holes left by other very visible departures. They include: Brad Brooks, a corporate vice president in the Windows consumer marketing group who left to work for Juniper Networks; Matt Miszewski, the general manager of Microsoft’s government business who is taking an executive post Salesforce.com and Johnny Chung Lee, the infamous Wii hacker who partnered with engineers in Microsoft’s Applied Sciences group to develop the Kinect for the Xbox 360. Lee is defecting to Google. Ouch! The Kinect motion camera has been an unqualified success for Microsoft. It sold eight million units in the first 60 day. Microsoft is also betting heavily on its Windows Phone 7, which has garnered generally positive reviews. Microsoft says it has sold over two million units to date but it isn’t clear how many of those units (which have been shipped to partners) have actually been sold. Microsoft will have to bring its “A” game to challenge Android-based smart phones, Apple’s iPhone 4 and RIM’s Blackberry.

It’s hard to believe but the first quarter of 2011 is now a memory and we’re well into spring. The tone for the year in high technology was set in early January: fast, bold, aggressive action and sweeping management changes.
In the first four months of the year high tech vendors moved quickly and decisively to seize opportunities in established sectors (smart phones, virtualization, back-up and disaster recovery) and emerging markets (cloud computing, tablet devices and unified storage management). As 2011 unfolds, it’s apparent that high technology vendors are willing to shift strategies and shed executives in order to stay one step ahead of or keep pace with competitors. The competition is cutthroat and unrelenting. No vendor, no matter how dominant its market share, how pristine its balance sheet or how deep its order backlog and book to bill ratio dares relax or rest on its laurels for even a nanosecond.
Recaps of some of the year’s highlights thus far are very revealing.
January lived up to its reputation for sweeping out the old and ushering in the new. The first four weeks of the year were hell on top executives. Advanced Micro Devices (AMD), Apple, Google, Hewlett-Packard and Microsoft all had shake-ups in their management ranks, albeit for very different reasons.
Apple delivered the first jolt early in the month. In a well orchestrated announcement (on the Martin Luther King holiday, a slow news day, and just in advance of its second quarter earnings release) the company said founder and chief executive Steve Jobs, the architect of Apple’s renaissance, would take a leave of absence for an undisclosed period of time to focus on his health. Tim Cook, Apple’s chief operating officer will serve as the interim CEO and he is most likely to inherit the top spot if Jobs doesn’t return.
News of Jobs’ departure was not entirely unexpected. He’s battled serious health problems for the past several years which necessitated a prior medical leave. Industry watchers greeted the news with gloom and dire prognostications. The fears were assuaged somewhat when Jobs made two high profile appearances. He was among a select group of Silicon Valley luminaries who dined with President Barack Obama in mid-February. More importantly though Jobs was on hand to launch the iPad 2 at Apple’s March 2nd press conference. This was an encouraging sign for Wall Street and industry watchers. They constantly wonder: can Apple continue to maintain its incredible momentum and success absent Jobs’ leadership, creative genius and vision with “just” an ops guy (Tim Cook), no matter how smart and accomplished? The answer for the first fourth months of 2011 is a resounding “Yes.”
The fears concerning Jobs are not wholly unreasonable. However, based on Apple’s continuing strong performance across all market sectors in which it participates, it would take freight train to blunt the Cupertino firm’s momentum. Apple’s iPhone powered by the iOS mobile operating system is one of the top three smart phone platforms along with devices powered by Google’s Android and Research In Motion’s BlackBerry. On the tablet front, Apple is the preeminent vendor with a dominant 65%+ market share. This won’t change anytime soon. Despite some early problems with light leakage on its displays, demand for the iPad 2 is robust – outpacing even its predecessor, the original iPad. The first shipment of iPad 2s sold out within the first 24 hours of its availability on March 11 at all of the 220 Apple stores in the U.S. Over a month later, the current order backlog for online sales stands at one to two weeks.
At press time, Apple’s stock was hovering at about $347 – which is on the high end of its 52-week range of $199.25 – 364.90. Apple’s sales for its last fiscal year, ended Sept. 30 2010, were $65.2 billion a little more than half of the $126 billion in annual revenues that HP recorded in its most recent fiscal year and approximately two-thirds of IBM’s revenues of $99.9 billion in FY 2010, while. A recent survey of financial and industry analysts conducted by Thomson Reuters forecasts that Apple’s fiscal 2011 revenues could rise by over 30% to $99.94 billion and reach $117.77 billion in fiscal 2012 for a very impressive two-year compound annual growth rate of 34.4%.
Location, Location, Location
Apple’s sales are on fire because their products are cool.
This is a big reason why Apple’s reputation hasn’t suffered much from the so-called “Locationgate” flap that cropped up in the last two weeks. The core issue is that unbeknownst to users Apple’s iOS was recording and storing all the details of all the places they visited via their iPhones and iPads. Apple was mum for a couple of weeks and then finally on April 27 the company issued a statement clarifying the situation.
First, Apple acknowledged that this was a bug and would be rectified. Next Apple said that the devices were not tracking the users’ movements but rather “maintaining a database of Wi-Fi hotspots and cell towers around your current location that is then used by your iPhone to rapidly and accurately calculate its location when requested.” The data is then downloaded by the user’s iPhone or iPad. The bug occurs because the iPhone continues to maintain the cache of data even after the iOS Location Services are switched off. Apple will rectify the matter by deleting the cache when Location Services is switched off.
To drive home the point even further, Steve Jobs did telephone interviews with several reporters. The better late than never explanation has satisfied most users although some in the blogsphere and forums say that Apple is doing little more than engaging in spin control because it got caught. Should Apple have said something sooner? In a perfect world, yes. Apple’s products are not perfect. They do experience problems. ITIC’s latest 2010 Apple Consumer and Enterprise Survey, which polled nearly 800 users last November/December found that Apple has an excellent track record with respect to addressing and fixing technical issues and performance problems. Eight-out-of 10 or 82% of respondents said they “never”, “rarely” or only “occasionally” encounter difficulties with Apple products/devices. Only a 7% minority indicated they experience weekly or daily issues. But whether you believe Apple’s statement is a ploy or a sincere public mea culpa, Apple is fixing the problem and that’s what counts.

For future reference though, Apple and all high tech vendors would do well to respond to these issues as they occur and not wait days or weeks.

Memo to Larry Ellison: The Roman Coliseum halted gladiator combats around 435 A.D. SAP has thrown in the towel and has no interest in continuing a court battle. Hewlett-Packard executives are refusing to accept service on your lawsuits and HP’s newly named chief executive Leo Apotheker is laying low, presumably dodging your increasingly vituperative verbal assaults. You’ve got no takers for the bloody, bare knuckles brawl you crave. What does that tell you?
It should signal an end to the Circus Maximus sideshow but it won’t.
No one desires this much attention or sticks their chin out spoiling for a fight like Ellison. And in an industry like high tech that’s overflowing with giant egos, that’s saying something. It’s true that Ellison’s antics always make for reams and reams of good copy. Reporters calling for comments on the latest developments don’t even bother to suppress their mirth. Enough is enough, though. The Larry Ellison Show would be more amusing if corporate customers weren’t getting caught in the crossfire.
The ongoing court case involving SAP’s acquisition TomorrowNow is not of course just about wresting an enormous $4 billion settlement out of SAP for copyright infringement. Where Oracle’s chief executive is involved, it’s never just about the matter at hand. There’s always a bigger agenda and it usually involves a grand spectacle.
In this case, Ellison is attempting to shoot and wound/kill two competitors — SAP and Hewlett-Packard with the same bullet — all the while “treating” industry watchers to a front row seat to his latest histrionics.
Remember that 60s axiom, “What if they gave a war and nobody came?” That’s exactly how competitors are reacting to Ellison’s bitter, bellicose attacks. The other combatants are surrendering (SAP) or hiding from him (HP’s Apotheker) and Ellison refuses to cease hostilities.
One can only shake one’s head at the serio-comic spectacle of SAP executives who have admitted that the now defunct TomorrowNow infringed on Oracle’s copyright. Earlier this week SAP co-CEO Bill McDermott apologized to Oracle in Federal court (when does that ever happen?), acknowledging that SAP had not been “appropriately vigilant” in overseeing the actions of TomorrowNow. For those not familiar with the case TomorrowNow illegally downloaded software and support documents from Oracle Web sites.
Ellison is unlikely to get that $4 billion in damages he claims Oracle is owed for TomorrowNow’s copyright infringement. Ellison testified that up to 30 percent of Oracle’s PeopleSoft customers and 10 percent of Oracle’s Siebel Systems users might have defected. But when pressed to provide actual figures, he revealed that Oracle had only lost about 350 customers and not thousands.
Oracle customers concerned over rising support costs, product security issues
Ellison should count his blessings. Oracle may in fact face customer defections in double digit percentages over the coming months and he won’t have anyone to blame but himself.
Over the past four years, Ellison has spent over $40 billion, gobbling up over 40 companies including large companies like PeopleSoft, Siebel Systems, BEA Systems, Sun Microsystems and ATG. Under the best circumstances, even the most amicable and complementary mergers and acquisitions are challenging for the merged entities and their respective installed customer bases. Oracle’s seemingly non-stop M&A spree has been characterized by several, very public, protracted internecine conflicts – most notably PeopleSoft.
Ellison continues to spew venom against his rivals while Oracle’s own customers fume. The Sun Microsystems SPARC, Solaris and MySQL users or what’s left of them, are increasingly restive. They are rightfully concerned about the fate of these acquired products under Oracle’s brand. They are also increasingly vocal in their complaints about rising service and support costs and worsening security. Oracle’s own database platform has had the dubious distinction of recording the highest number of security vulnerabilities of any of the major databases for the last eight years, according to statistics compiled by the National Institute of Standards and Technologies (NIST).
On these subjects Ellison is silent.
Last week, Oracle sought to staunch a backlash from confused and frustrated MySQL users worried about new pricing and packaging options. Rumors swept the Web that Oracle was reportedly doubling the pricing. There’s more to the story than that, but the MySQL open source database pricing and support has increased since Oracle acquired Sun. To be fair, Oracle simplified the complex MySQL product packaging and support pricing structure that existed under Sun. Oracle now gives all MySQL users 24×7 global support. Under Sun, users who purchased the MySQL Basic package for $599 were not entitled to any phone support. Oracle now gives MySQL Basic customers support; however the new entry level pricing has risen from $599 to $2,000 for the Standard Edition. Additionally, large enterprises that paid Sun Microsystems $4,999 for the MySQL Cluster Carrier Grade Edition also got sticker shock: Oracle hiked the price to $10,000 per server.
And that’s not all. Earlier this year, Oracle quietly also initiated widespread changes to the Sun Microsystems’ SunSpectrum support (which officially ended in mid-March) replacing it with a new program. This significantly hiked support costs for many former Sun customers at a time when many businesses are struggling to find the funds for new product upgrades. On a positive note, support renewals for existing SunSpectrum contracts are now priced at a flat annual price based on the individual user’s SunSpectrum contract. The renewal price is the same as the SunSpectrum contract currently in place. However, users who read the fine print, will note that Oracle changed the terms and conditions of its hardware warranties and Premier Support for Systems contracts.
Translation: Oracle cut back on standard support services and will provide onsite coverage only for specified products. Oracle’s new product coverage and support fees for the former Sun products and services take the concept of “nickel and diming” to new heights.
Customers that want 24×7 coverage, onsite response and faster responses times above and beyond a limited one-year warranty and Monday through Friday phone support will pay handsomely for the top tier coverage. Oracle now requires customers to buy support for every component, part and spare part they order. There are no add-ons to existing contracts; customers don’t have the option of cancelling contracts and customers receive not credit for any equipment covered under their contracts if they decide to take them out of service or dispose of them.
Corporations that opt not to purchase a support agreement at the time they buy their products will pay a hefty “reinstatement fee” of 150 percent of the standard support for the period of time between the initial product sale and the date they purchase the support. The 150 percent fee is exclusive of the standard yearly support contract prices!
Businesses that want to hang on to their capital expenditure monies are well advised to instruct their IT managers to learn how to install and replace parts themselves. Oracle will charge customers incremental fees to install any “self-service replacement part.”
Oracle is not alone in initiating price hikes for service and support. But its users might have less cause to grumble if they were satisfied with the quality of the support.
The latest ITIC 2010-2011 Global Server Hardware and Server OS Reliability Survey, which polled over 400 businesses worldwide found that Oracle products received the lowest ratings for security and for the quality of its service and support of any of the major vendors. Only 31 percent of the respondents gave Oracle an “excellent” or “very good” rating for product performance, service and support. This is in sharp contrast to the over 75 percent of survey participants who gave rivals HP and IBM and 70 percent of Dell users who gave those vendors “excellent” and “very good” marks for their hardware product performance, service and support.
And in Oracle’s core competency databases, both IBM’s DB2 and Microsoft’s SQL Server significantly scored higher satisfaction ratings among the survey respondents. Over 80 percent of those polled gave IBM DB2 and Microsoft SQL Server “excellent” or “very good” ratings compared to the 43 percent of respondents who gave the Oracle DB an “excellent” or “very good” rating.
Some of the anecdotal user comments about Oracle support were scathing.
“Our Sun support has become even more abysmal since crazy Larry purchased them; it’s hard to believe,” remarked an IT manager at a large healthcare organization with over 100 servers.
Oracle registered the highest percentage of dissatisfied users, with 20 percent or one-in-five respondents judging Oracle (Sun) hardware products, service and support to be “poor” or “unsatisfactory.” By contrast only a small five percent minority of HP users, four percent of Dell customers and less than three percent of IBM users rated those companies hardware offerings to be “poor” or “unsatisfactory.”
Focus on Business Not Brawling
It’s clear that SAP clearly has no interest in continuing its court battle with Oracle. Since Ellison is obviously still spoiling for a fight he might instead get himself booked on a TV show like “Survivor” or Donald Trump’s Celebrity Apprentice. Alternatively he could see if one of the boxing associations will oblige him and arrange a match with one of their champions.
Ellison and Oracle should let the lawyers hammer out an appropriate settlement with SAP. And for the sake of its large common customer base, call off the search to serve Apotheker the subpoena, tone down the anti-HP diatribe and get back to work.
The best thing Oracle can do is to concentrate on shipping high quality, high performance and highly secure products and delivering top notch service worthy of those pricy support premiums.
Otherwise, one of these days Ellison might be surprised to find that the Oracle customers, like the noble gladiator Spartacus have revolted and defected to competitors who wisely paid more attention to business than brawling.