Tesla Falters/Oracle Fumbles

By Charles King, Pund-IT, Inc.  July 6, 2016

Holidays sometimes bring out the worst in people—loutish behavior, public spectacles, etc. But long celebratory weekends also offer public companies the chance to drop bad news, obscure significant failures or make announcements that would otherwise incite far closer speculation. The days leading up to and including the 2016 July 4th weekend included a couple of doozies.

Tesla’s bad news hat trick

Heading into the weekend, it was hard to imagine how things could get any worse for Tesla. First and foremost, the company’s announced merger with one of CEO Elon Musk’s other ventures – Solar City – did not earn even a fraction of the public praise the two companies’ boards of directors likely hoped it would.

Rather than focusing on the synergistic market potential of “micro grids” that Musk extolled, critics lambasted the deal’s fundamental flaws, including the cozy connections the companies share. In fact, five SolarCity BOD members, who also work for or with Tesla, had to recuse themselves from voting on the deal, leaving the final decision in the hands of a two-person committee.

Though some analysts and talking heads took up Tesla’s case, the general lack of enthusiasm for the merger was a significant slap at the judgement of Musk, a guy most people consider one of the tech industry’s smartest and most ambitious lights. Accordingly, Tesla shares were off over 3% on the news—not exactly what Musk or the boards were hoping to inspire.

Then on June 30, Tesla acknowledged that the National Highway Traffic Safety Administration (NHTSA) had opened an inquiry into a fatal accident involving a Tesla Model S in which the car’s autopilot system may have been a factor. That unleashed a doom/gloom torrent of online speculation about Tesla’s responsibility for the accident and its impact on the frail state and uncertain future of autonomous vehicle technologies.

Not surprisingly, Tesla shares took another significant (3%+) hit. But as details leaked out, including how excessive speed and driver distraction (a running portable DVD player was reportedly found in the mangled Model S) may have contributed to the crash, the negative voices were leavened a bit and public opinion seemed to soften.

But over the July 4th weekend, Tesla completed its bad news hat trick by dropping its 2016 second quarter sales figures of 14,370 vehicles. While this was an improvement over Q2 2015, it fell significantly short of the 17,000 sales Tesla projected. On the first day of trading after July 4th, Tesla shares, once again, took a 3%+ hit. Whether this is a simple aberration or proof that bad news comes in 3s, it qualifies as a classic example of a company burying the bad news while trying very hard to emphasize the good.

Oracle’s flops in HPE Itanium suit

On the Thursday before the holiday weekend, a California jury ordered Oracle to pay $3B to Hewlett-Packard Enterprise (HPE) in damages related to a breach of contract suit. That suit was filed by HPE (then HP) after Oracle announced in 2011 that it would no longer develop software for HP servers that utilized Intel’s Itanium chips. That was a serious issue for HP whose enterprise-class systems constituted about 90% of the Itanium market.

According to Oracle, Intel sources confided that Itanium was reaching its end-of-life and that the company would shift focus to its Xeon family for server applications. HP and Intel both disputed Oracle’s claim, saying that the Itanium roadmap extended for a decade or more.

Additionally, HP said that it had a contractual agreement with Oracle that obligated the company to continue supporting software for the Itanium platform. During the trial’s first phase, in 2012, Santa Clara Superior Court Judge James Kleinberg ruled that there had been a contract. After numerous delays, the damages phase of the trial wrapped things up last week.

That concludes (at least for the time being since Oracle, predictably, said it will appeal both the original and the damages judgements) one of the weirder Silicon Valley melodramas of the past decade. The action began in August 2010 when then-HP CEO Mark Hurd resigned his position following a company investigation into his relationship with a female contractor.

Days later, Oracle hired Hurd to manage the hardware portfolio from its 2009 Sun Microsystems acquisition. Hurd was a close friend of Oracle CEO Larry Ellison, who had decried Hurd’s firing in an email to/published by the New York Times that read (in part); “In losing Mark Hurd, HP’s board failed to act in the best interest of HP’s employees, shareholders, customers and partners.”

HP cried foul at the hiring, noting that working for Oracle’s hardware group violated Hurd’s non-disclosure agreement (NDA), and sued him to protect its business and technology secrets. According to a New York Times article, after the suit was filed Oracle CEO Larry Ellison, “warned that HP’s actions threatened to derail the two companies’ longstanding partnership.”

The scope of that threat was considerable. According to the Times article, about 40% of Oracle’s business software ran on HP systems, and the two companies had around 140,000 customers in common. Just two weeks after filing its complaint, HP announced a settlement with Hurd modifying his separation agreement and waiving about half the compensation owed to him.

Then ten days later, HP hired Leo Apotheker (formerly CEO of SAP, a significant competitor of Oracle) as its new CEO. The move exasperated Ellison, who shared his thoughts in an email to/published by the Wall Street Journal. Oracle’s decision to halt development for Itanium was announced the following March. Where things go from here is anyone’s guess.

Final analysis

So what should we make of the situations at these entirely separate and unrelated companies? In the case of Tesla, the company’s tough week serves as a reminder of just how new and essentially unexplored many of the company’s efforts and markets really are. As a result, unfortunate events and missed opportunities will trigger (mostly) short term, knee jerk market reactions.

It’s also crucial to note that Tesla’s importance to larger industry trends, including self-driving cars, is often overblown. While impressive, the company’s solutions are hardly unique, and it’s arguable that other innovative autonomous driving technologies, like Google’s, are more advanced. It’s also likely that collaborative efforts, including the one announced last week between Intel, BMW and Mobileye are likely to overcome many if not most of the advantages that first movers, including Tesla have so far enjoyed.

Of Tesla’s bad news hat trick, the proposed SolarCity merger seems likely to have the longest hangover. Tesla itself is hardly out of the woods financially, so the idea of hooking up with another company facing a raft of challenges (including aggressive pricing from offshore competitors) seems unwise. Musk may believe that “micro grid” synergies make the deal worth pursuing, but larger risks could stifle or snuff out any potential benefits.

The case of HP/Oracle is curious in the extreme, especially since the latter’s planned appeal will apparently attempt to reverse a decision that’s nearly half a decade old. It’s difficult to see how the company will achieve a measurably different outcome for two reasons.

First and foremost, while simply ending software development due to a hardware platform’s end of life isn’t unique, it is unusual. That’s especially the case when the software vendor’s claims about the platform life expectancy directly contradict its owners. One can only imagine what the tone of Larry Ellison’s emails would be if a silicon or server vendor partner made similar claims about Oracle’s product roadmaps.

But aside from any contractual agreements the company had with HP, Oracle’s actions also contradicted its own past behavior. The fact is that no server microprocessor or platform lasts forever, and over the years, dozens of enterprise solutions (along with many vendors) have expired. When that occurs vendors and their partners typically work together to help customers successfully transition to new platforms.

In fact, HP and Oracle successfully teamed when the former decided to migrate its own PA-RISC-based systems, along with the Alpha and Tandem Nonstop platforms it acquired from Compaq to Intel Itanium. In other words, not only did Oracle’s unilateral Itanium decision violate its contract with HP, it also contradicted long established IT industry best practices, as well as its own previous collaborations.

The pre-July 4th ruling also marked the second major legal defeat Oracle has suffered this year, following its loss to Google over Java technologies in the Android OS. Oracle plans to appeal that judgement, as well, but it might be wiser instead for the company to reconsider its options and broader strategy.

While the main points here for Tesla are to cultivate resilience against unexpected events and resist shooting oneself in the foot, Oracle’s might be to avoid frivolous litigation against partners that contribute billions to your bottom line. These are both lessons straight out of Business 101 but it’s remarkable how often even the smartest and most successful companies forget the fundamentals.

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