Lawsuit questions Oracle savings claims

The jury appears to be out on Oracle's claim that it saved US$1 billion by standardizing on its own applications.

While some industry observers and competitors expressed doubts about just how much money Oracle's E-Business Suite 11i saved Oracle, a new lawsuit goes beyond mere skepticism to allege fraud.

Milberg Weiss Bershad Hynes & Lerach LLP, a New York-based law firm, earlier this month launched a class-action suit on behalf of Oracle investors. The suit attacks, among other things, Oracle CEO Larry Ellison's much-repeated claim that from 1999 to 2000, Suite 11i saved the company $1 billion, primarily through software automation and centralization. In recent months, Oracle has been using its Suite 11i testimonial to create interest from potential customers.

According to a statement by Milberg Weiss, one of the law firm's partners, Ellison violated securities laws by misrepresenting Oracle's real earnings potential and then made a huge profit by selling off his stock at an artificially inflated price.

The suit alleges that despite Oracle's claims to the contrary, Suite 11i was "fraught with massive technical problems." requiring expensive integration work.

Moreover, Weiss alleged, "Oracle's so-called billion-dollar savings was not the result of the synergies created by Oracle's 11i product but rather [Ellison's] decision to terminate more than 2,000 employees." He claimed that the firings saved the company at least $400 million.

"We've not received or reviewed the complaint, but the allegations are without merit and will be defended against vigorously," an Oracle spokesperson said last week. "There were never a large number of layoffs." While implementing Suite 11i, the company trimmed approximately 1,000 jobs, mostly through "natural attrition," the spokesperson said.

According to the spokesperson, Oracle never claimed "that every cent of the $1 billion came from implementing the software." Rather, the company saved money also by traditional cost-cutting methods supported by Suite 11i. For instance, Oracle moved much of its support operations online, freeing up personnel for redeployment elsewhere.

Some industry analysts said they agree.

From a bureaucratic point of view, Oracle was "grossly inefficient" for a long time and lacked centralization, said Joshua Greenbaum, an analyst at Enterprise Applications Consulting. Oracle saved money by consolidating IT operations on one set of Suite 11i applications instead of relying on disparate software suites.

Weiss' claim that Oracle saved $400 million by firing only 2,000 people sounds too high to be credible, Greenbaum said.

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