Ellison Takes The StandEllison Takes The Stand

Oracle CEO Larry Ellison Wednesday testified in U.S. District Court that the company he co-founded has zero interest in PeopleSoft's products or technology. Instead, Oracle wants PeopleSoft's enterprise customers so it can boost real dollars spent on product development.

Eschewing his customary mock turtleneck sweater in favor of a corporate gray suit, Ellison took the stand in the afternoon to describe how increasing pricing and competitive pressures will force the Redwood Shores, Calif., company to improve its products even as it lowers prices.

"To make products better, we have to spend more on engineering, and the only way to do that while lowering our price was to have a larger installed base," said Ellison, alluding to the fact that R&D spending is typically a percentage of revenue. "We chose the acquisition direction as the only way to grow our business so we could increase our investment in engineering."

When asked by Oracle lead attorney Dan Wall how PeopleSoft would give Oracle scale, Ellison said the enterprise applications vendor would double Oracle's applications customers. "We have to increase the investment in applications while lowering prices, and the only way I know how to do that is sell to more customers."

And why not lower prices without scaling up? "That's what Netscape did. They went out of business," said Ellison.

Ellison's testimony was among the most highly anticipated in the month-long trial, in which the Department of Justice is suing to block Oracle's $7.7 billion bid for PeopleSoft, Pleasanton, Calif. Spectators hoping to fill the federal court formed a long line down the marble corridor, after guards had cleared the courtroom for the lunch break. At the trial's resumption, Ellison fit right in amid a sea of gray suits amassed in front of Judge Vaughn Walker.

Looking relaxed, Ellison described how PeopleSoft CEO Craig Conway had called him in June 2002 to propose a merger. Ellison said that, after thinking about it, he decided it was "the smartest thing we could do to improve our applications business." According to Ellison, he and Conway discussed the merger several times, and each dispatched senior managers to work out the details. As Ellison described it, the snag turned out to be one of egos.

"Craig felt he was the right person to run the business, I felt that since we were going to be majority owner, that we should run the business -- not Craig," It was the deal breaker. Exactly one year later, when PeopleSoft announced it would acquire JD Edwards, Oracle renewed its efforts to buy PeopleSoft.

Ellison testified that Oracle preferred to buy PeopleSoft without JD Edwards, saying that company's World software, which runs on the IBM AS/400 operating system, could not contribute to Oracle's database sales.

During his two hours of testimony, Ellison denied PeopleSoft's assertion that Oracle would discontinue PeopleSoft's products, and deflected DOJ attorney Claude Scott's suggestions that Oracle merely wanted to disrupt a competitor's business. He also said that, should Oracle not be allowed to pursue PeopleSoft, it had "three or four" other candidates under consideration, including a business intelligence vendor, an enterprise applications company and an infrastructure software company

In an earlier deposition, Ellison had said Siebel Systems' CEO Tom Siebel had come to Ellison's house to ask Oracle to buy Siebel. That suggests the CRM software vendor as a likely applications target. And Oracle has said infrastructure leader BEA Systems is on its short list of potential acquisitions. BI vendors Business Objects and Cognos could possibly deliver the scale Oracle seeks.

Oracle is expected to call its last witnesses Thursday. Judge Walker is expected to issue his rulings by early August.