A strong desire to crack the Japanese market and the urgent need for a cash injection drove Oracle Corp into signing the letter of intent with Nippon Steel Corp (CI No 1,687). For a small undisclosed sum Nippon has taken a 49% stake of a new company that will own Oracle Japan leaving Oracle with […]
A strong desire to crack the Japanese market and the urgent need for a cash injection drove Oracle Corp into signing the letter of intent with Nippon Steel Corp (CI No 1,687). For a small undisclosed sum Nippon has taken a 49% stake of a new company that will own Oracle Japan leaving Oracle with the remaining 51% along with $200m in long-term financing. Mike Musson, director of investor relations with Oracle was adamant that financial problems had not driven the company to seek outside investment. Oracle still has its bank syndicate deal for financing and last quarter the company generated $24m in cash. Nevertheless, Oracle has spent a great deal of time negotiating new lines of credit with its lenders – negotiations that are still ongoing.
Musson argued that as banks are conservative lenders, they are not good long-term lenders for companies operating in a volatile industry. If Nippon Steel takes up all its options to convert the debt and preferred shares it will own a total of 9.8% of Oracle. The deal will take two months to complete and most of the $200m will go to reschedule Oracle’s debts – the company’s debt is currently running at $160m above its credit lines. If the deal falls through then Oracle will have to move quickly to finalise its bank agreement, presumably on the banks’ terms (CI No 1,626. Musson did not think that fraud had played a significant factor in Oracle’s current financial troubles but said that we purged from our ranks people guilty of fraud as of October last. A good number of Oracle’s problems can be attributed to mismanagement, sloppy revenue reporting procedures within the company and so on. Musson characterised the problems as being the difficulties of management in a time of hyper-growth. As for Japan, Oracle sees this as a large growth market for its products as Unix takes off there. Currently Japan accounts for only 1% of Oracle’s revenues. The problem of penetrating the Japanese market will have been eased considerably by this alliance with Nippon Steel, for Nippon has a $740m systems integration business employing 3,000 people. It also has the advantage, according to Oracle, that it doesn’t belong to any keiretzu – groups that control retail distribution and wholesale distribution – and because of its non-partisan attitude has access to all channels. Nippon Steel’s systems integration business operates in the big commercial markets and Oracle software will be rolled into its deals as part of the agreement. Some Nippon Steel employees will work for Oracle Japan, but the company will not take any Oracle Corp board seats. Nippon Steel also gets access to Oracle technology, and the company is, it has to be said, a hardware manufacturer at present operating in the microprocessor market – but it also markets Concurrent Computer Corp machines. Musson would not comment on whether other Japanese companies had been approached, but the deal has taken many months to put together. There is an air of humble pie retrenchment at Oracle that contrasts with the optimism now evident at Ask Ingres – not to mention the drive and verve of the upstart object database vendors that are watching and waiting in the wings. However, a strong presence in the Japanese market is an opportunity that should not be taken lightly by Oracle’s rivals… – Katy Ring