HP-Oracle rift over Hurd may not mend easily

SAN FRANCISCO Fri Sep 10, 2010 9:27am BST

Mark Hurd, chairman, CEO and president of HP speaks at the Fortune Brainstorm Tech conference in Pasadena, California, in this July 24, 2009 file photo. REUTERS/Fred Prouser/Files

Mark Hurd, chairman, CEO and president of HP speaks at the Fortune Brainstorm Tech conference in Pasadena, California, in this July 24, 2009 file photo.

Credit: Reuters/Fred Prouser/Files

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SAN FRANCISCO (Reuters) - The relationship between long-time technology partners Hewlett-Packard Co and Oracle Corp has been strained by a very public spat over the hiring of Mark Hurd, and it could get worse.

Analysts say the bad blood and mistrust between Oracle ORCL.O and HP (HPQ.N) -- sparked by Oracle's hiring of the former HP CEO and HP's attempt to block it -- comes at a particularly sensitive time and may not fade, as the companies begin to compete more directly in the IT hardware market.

Industry watchers say if relations between HP and Oracle continue to deteriorate, and cooperation over product integration suffers, rivals like Microsoft Corp (MSFT.O) and IBM (IBM.N) could benefit.

Oracle's software runs on HP servers and storage products, and the companies have long collaborated on and jointly developed products. The two have been strategic partners for more than two decades, and count more than 100,000 joint customers, according to press materials.

The companies also now go head-to-head in the server market, following Oracle's recent $5.6 billion (3.6 billion pounds) purchase of Sun Microsystems. But the relationship between the tech heavyweights has been shaken over the past month, following Hurd's unceremonious departure from HP.

Oracle pounced on Hurd a month after HP forced him out, putting him in charge of sales, marketing and support. HP said Hurd filed inaccurate expense reports related to a female contractor.

Oracle CEO Larry Ellison has been unsparing in his public criticism of HP for jettisoning Hurd, his close friend. HP's move to sue Hurd to prevent him from joining Oracle showed HP's anger that Hurd might use his intimate knowledge of HP against his old firm.

Although Ellison is famously combative and outspoken, analysts say the public vitriol is not mere bluster.

"Ellison doesn't trifle with people," said Caris & Co analyst Curtis Shauger. "When he sees HP come after him, he's not going to play friendly."

Ellison last month labeled HP's board "cowardly" for its handling of Hurd's exit. On Tuesday, he called the suit against Hurd "vindictive" and said the HP board is making it "virtually impossible" for the two companies to work together.

Oracle did not immediately respond to a request for further comment.

For its part, HP has also acknowledged the tension. Cathie Lesjak, HP's interim chief executive, said Wednesday its relationship with Oracle has been "strained," but she expects the companies to be "good partners" in the future. HP declined to comment further.

But some analysts were not optimistic that the relationship can be easily repaired.

Wedbush Morgan analyst Kaushik Roy said Hurd's presence at Oracle -- and particularly his role integrating the former Sun business -- will continue to rankle HP.

"Once Oracle bought Sun, you are competing anyway, but the bitterness wasn't there. In this situation with Hurd, it's just going to get bitter," said Roy, who blames HP's board for pushing out Hurd.

"It's going to cause some difficulties in the partnership, and that's going to hurt HP and Oracle and their customers and shareholders," he said.

HP is the world's largest technology company by revenue, and the top PC and server vendor, according to IDC. Oracle is the third-largest software company.

Consolidation in the IT sector over the years has blurred the lines between rivals and partners. Alliances have shifted as companies such as HP, Oracle, IBM (IBM.N), Cisco Systems (CSCO.O) and Microsoft all fight for a piece of IT spending.

Companies have grown accustomed to partnering with each other in certain areas while competing in others. But the war of words between Oracle and HP over Hurd could sour what had been a lucrative relationship said ITIC analyst Laura DiDio.

"Yes it will be costly," she said. "And Microsoft and IBM could capitalize.

"HP has always been the Switzerland of the high-tech industry because they don't get into the vinegar and vitriol ... but the minute somebody sues, you lose," DiDio said.

"And when you've got Ellison in the mix, you know he's not going to be discreet."

(Reporting by Gabriel Madway; Editing by Bernard Orr)

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