Day of reckoning arrives at PeopleSoft campus

Contra Costa Times ^ | 1/14/5 | Ellen Lee

[SmithL]

Oracle Corp. could slash as many as 4,800 jobs today as part of its $10.3 billion takeover of PeopleSoft Inc., analysts said.

Based on preliminary calculations -- and a bit of guesswork -- Wall Street analysts predict that Oracle will have to cut 2,000 to 4,800 positions to make the deal financially worthwhile, yet at the same time fulfill the commitments it has made to the Pleasanton software maker's customers.

Most are expected to come from PeopleSoft's 11,225-employee base, but a substantial number of Oracle employees could also face the ax, sources in the software industry said.

Though it may be little consolation to employees, the latest figures fall below Oracle's earlier estimates that it could dump as many as 6,000 jobs.

Several factors have changed since Oracle's estimates first came out last summer: Most notably, Oracle has promised to develop a new generation of PeopleSoft's products and to support PeopleSoft's current offerings for 10 years. To do so, it said it will maintain a presence in PeopleSoft's Pleasanton headquarters and keep PeopleSoft's developers and support staff to appease customers.

"We don't think there will be as many cuts as people's worst fears," said Charles Di Bona, an analyst with Sanford C. Bernstein & Co. who criticized Oracle's decision to back off from its initial plans. "I think they're over-committing (to PeopleSoft customers) and they're not cutting enough heads."

Oracle has said that the deal could start being profitable in just a few months. By next summer, it could add $418 million to its bottom line each year.

To reach those numbers, Oracle will have to act swiftly and remove the deal's biggest expense, employees, said Clark Chang, an analyst with Fulcrum Global Partners. He believes the initial number of pink slips is about 3,500. "It's as simple as you have to have a big layoff," Chang said.

Tad Piper, an analyst with Piper Jaffray & Co., estimated that Oracle will have to make $900 million in cost cuts. Most of that will come from eliminating 4,500 to 4,800 jobs, though some of it will also come from consolidating offices and other resources, he said.

Both Piper and Chang added that over time the total number of heads to roll could still reach Oracle's initial estimate, between 5,500 and 6,000.

Reading into Oracle's comments thus far, analysts believe that Oracle will lop off most, if not all, of PeopleSoft's administrative staff and a chunk of PeopleSoft's marketing employees while keeping a portion of its sales directors and consultants and most engineers. Based on a Securities and Exchange Commission filing last year, 40.1 percent of PeopleSoft's employees are in services, such as consulting, 20.1 percent are in sales and marketing, 29.2 percent are in research and development and 10.7 percent are in administration.

But Eric Upin, a Wells Fargo Securities analyst, said that Oracle should not focus on cost cutting as its primary goal. He estimates that the workforce reduction will range from 2,000 to 3,000 and that Oracle will keep PeopleSoft employees with certain customer expertise and relationships to help with the transition. Oracle could also reduce costs by shifting jobs overseas or to Denver, where PeopleSoft has a large campus and where doing business is cheaper.

"I don't think the first step is all about savings," he said. "The first step is to make sure this goes smoothly."

Keeping PeopleSoft's customers happy will be a critical component in making the deal successful. Oracle is depending on the millions of dollars in maintenance and support revenues that PeopleSoft customers regularly pay to keep their software up to date and to fix bugs and other problems. Oracle is also counting on eventually moving PeopleSoft customers to both its software and database technology.

Part of the analysts' tabulations include making certain assumptions on how much revenue PeopleSoft will continue to generate for Oracle. New software sales are expected to drop, since Oracle said it will not actively sell PeopleSoft's products. PeopleSoft's maintenance and support revenues will decline a bit as some customers find other options.

Regardless of the exact number, PeopleSoft employees have been anxiously waiting to learn their status with the combined company. One rumor floating around the Pleasanton campus is that the software development team is expected to be impacted the least, with between 5 percent and 20 percent in cuts. Another is that Oracle plans to inform some employees in person today while others will be overnighted severance packages Saturday.

Oracle formally plans to announce details of the new company at a customer event Tuesday and at an analyst day in New York City at the end of the month.

[SmithL]

Unpleasant times in Pleasanton.

[djf]

The couple of folks I know there aren't very thrilled.

Oracle got hacked when Peoplesoft dumped them and went to DB2 as the preferred database. PS still has alot of mainframe and midrange AIX boxes.

[auburntiger]

Those studying computer science had better rethink their career objectives. Most of the lost jobs will re-emerge in India, Philippines and China.

[handy old one]

Does Oracle use mushroom management: Keep them in the dark, feed them lots of manure and pop off their haeds when they stick up???