MH has a unique talent, he has raised the art of bending truth to a new level. In the Q4 2018 report I think he went too far, I'd say he used his silver tongue to the point he knowingly committed fraud to deceive investors. I cut out his direct statements and will give you some inside knowledge I have from these accounts. Everything he said, and everything I say can be independently fact checked. I think it fits the definition of fraud.
Lets see the legal definition of fraud. As we will see in the statements below, definitions are something MH plays fast and loose with... Its important we get this right.
Fraud is generally defined in the law as an intentional misrepresentation of material existing fact made by one person to another with knowledge of its falsity and for the purpose of inducing the other person to act, and upon which the other person relies with resulting injury or damage. Fraud may also be made by an omission or purposeful failure to state material facts, which nondisclosure makes other statements misleading.
To constitute fraud, a misrepresentation or omission must also relate to an 'existing fact', not a promise to do something in the future, unless the person who made the promise did so without any present intent to perform it or with a positive intent not to perform it. Promises to do something in the future or a mere expression of opinion cannot be the basis of a claim of fraud unless the person stating the opinion has exclusive or superior knowledge of existing facts which are inconsistent with such opinion. The false statement or omission must be material, meaning that it was significant to the decision to be made.
Let us go directly to the statements, the link for verification is here:
https://seekingalpha.com/article/4182700-oracle-corporation-orcl-ceo-safra-catz-mark-hurd-q4-2018-results-earnings-call-transcript?page=4
There’s a little bit of mention of AT&T. I thought I’d give you an update on AT&T. AT&T, of course, is moving thousands of terabytes of data to the Cloud. We have begun to migrate thousands of these databases as we speak. We expect within the fiscal year to have the AT&T data centers all connected to the Oracle Cloud, migrating this massive dataset.
When MH says AT&T is "moving thousands of terabytes of data to the Cloud" and "We expect within the fiscal year to have the AT&T data centers all connected to the Oracle Cloud, migrating this massive dataset." Any reasonable person would assume that all the data that MH is speaking about is actually in the Oracle cloud at one or more of the 12 data centers that Oracle operates.
Note Oracle rents space in 3rd party data centers. This fact is not disclosed. But he implies that the AT&T data for the Oracle databases are in the Oracle "cloud" data centers and that is where AT&T is migrating is database data. AT&T is doing no such thing. AT&T purchased "Cloud at Customer" which is a host of engineered systems (Exadata and the like) physically hosted in the AT&T data centers. The only thing "cloud" about this other than the name "Cloud at Customer" is a set of automated self service scripts which only meets a narrow definition of cloud, he must include the deployment model of private cloud. Otherwise he is implying that Oracle is offering a full service offering running in Oracle data centers. This is a material omission of facts relevant to revenue reporting that will mislead investors.
Additionally the "Cloud at Customer" deal with AT&T is part of a bundled 5 year "Universal License Agreement" (ULA) signed in 2017. This is significant as it means that AT&T can use the servcies listed as much as they want with out penalty or increase in payment, which means no new "cloud" revenue to Oracle for the next 5 years. What also is not mentioned is that as AT&T moves data to the "Cloud at Customer" racks in their own datacenter they reduce their support costs. This is important because the biggest revenue stream at Oracle is the support revenue based off of its perpetual licenses. In 2017 it was standard operating procedure to offer .50 cents reduction in support cost for every cloud dollar spent.
Lets assume AT&T paid 100 million in support to Oracle every year. The sales team (incented to do this by MH) would give AT&T the following proposal. It goes something like this:
Oracle Sales: "You will spend 500 million with us over the next 5 years for support alone right?"
AT&T: "Right. And I would love to make that go away."
Oracle Sales: "What if I told you I could make it all go away in 5 years?"
AT&T: "I'm listening."
Oracle Sales: "What if I give you our "cloud at customer" racked servers that allow you to self provision your databases and use as much of the services as you like for the same price you are paying in support now. Its unlimited, like a buffet eat as much as you want for five years, and you can renew with the exact same terms five years from now."
AT&T: "Sounds interesting but 10 years from now I am no better off, I still have to pay 100 million a year in support."
Oracle Sales: "Did I mention as you migrate your data to cloud at customer you retire your support cost at .50 per dollar. So if you could migrate all your data in year one, your annual support cost would be reduced to 50 million. At the end of year two since all your data is in cloud at customer, you no longer owe anything in support. How does 0 dollars in support sound?"
AT&T: "So I pay you the same I pay now, I can use as much as I want and after wto years my support costs go away forever?"
Oracle Sales: "Yes."
Its a no brainer. What happens? MH goes on CNBC and touts his big cloud win. He has basically cloud washed the entire AT&T revenue stream. Conversations like this actually took place. Conversations MH directly participated in at AT&T and Verizon. MH then goes on national news to lie about a number things. Just about everything he says is misleading or false and he knows the direction Oracle will actually take when he says it.
May 4th 2017
https://www.cnbc.com/2017/05/04/oracle-ceo-mark-hurd-interview-att-deal-no-layoffs.html
Here we see MH touting the AT&T deal as cloud revenue. Remember all Oracle has done is installed servers in the AT&T datacenter. They took support revenue and rolled it in to an all you can eat ULA and called it "cloud" revenue. At best its a "private" cloud. Mark carefully omits this information, misleading investors to think AT&T is actually using servers in the Oracle Cloud, much the way amazon runs its cloud.
AT&T signs on
Oracle also announced on Thursday that AT&T will move thousands of large databases to Oracle's cloud. AT&T will use Oracle's software services to do tasks like automating the dispatch of its 70,000 field technicians. AT&T's enormous amount of data required months of working with Oracle's databases, Hurd told CNBC.
"I think the fact that we've got such a significant customer that's made such a big bet ... we're just very excited about it," Hurd said.
I am sure this news helped raise Oracle stock to what will probably be its all time high. As the support revenue streams dry up because of the cloud conversion rates, MH is literally destroying Oracles long term revenue for a short term boost in "Cloud Revenue." AT&T is just one example.
I wanted to go over the whole Q4 earnings with an insiders point of view... but ran out of space on just the AT&T deal. Point being MH has committed fraud and has mislead Oracle employees, the public and investors repeatedly, all for the purpose of making a profit and bumping up the stock price for the short term.