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Just how close is Oracle to reaching its lofty cloud ambitions?

Just how close is Oracle to reaching its lofty cloud ambitions?

Analysts suggest Oracle still has a long way to go in its cloud journey

Larry Ellison - Founder and CTO, Oracle

Larry Ellison - Founder and CTO, Oracle

On 21 June, Oracle revealed that its software-as-a-service (SaaS) business came close to nudging the US$1 billion mark in the fourth quarter of 2017, but just how close is the company to reaching its lofty cloud ambitions?

In its latest financial results, Oracle revealed that its SaaS business pulled in US$964 million in the quarter, accelerating its year-to-year growth from 50 per cent to 67 per centt over the past four quarters, in part thanks to the support of its NetSuite acquisition.

Meanwhile, cloud platform-as-a-service (PaaS) plus infrastructure-as-a-service (IaaS) revenues were up 40 per cent to US$397 million. Total cloud revenues were up 58 per cent to US$1.4 billion.

At the same time, cloud plus on-premise software revenues were up five per cent to US$8.9 billion. Total revenues were up by three per cent to US$10.9 billion.

“Our fourth quarter results were very strong as revenue growth and earnings per share both substantially exceeded the high end of guidance,” Oracle co-CEO, Safra Catz, said. “We continue to experience rapid adoption of the Oracle Cloud, led by the 75 per cent [non-GAAP] growth in our SaaS business in Q4.

“This cloud hyper-growth is expanding our operating margins, and we expect earnings per share growth to accelerate in fiscal 2018,” she said.

According to Oracle’s other co-CEO, Mark Hurd, the company sold US$855 million worth of new annually recurring cloud revenue in the fourth quarter, putting the company over its US$2 billion annually recurring cloud bookings goal for fiscal year 2017.

“We expect to sell a lot more than US$2 billion in new cloud ARR [Accounting Rate of Return] in fiscal year 2018,” he said.

While there is likely to be a lot of well-deserved self-congratulatory metaphorical back-slapping going on following the bumper quarter, analysts argue that the company is still in its relative infancy in terms of the maturity of its cloud business.

“Oracle is still near the relative beginning of its long transition, with the PaaS and IaaS businesses yet to reach scale, and even the SaaS business is arguably immature,” Technology Business Research analyst, Meaghan McGrath, said.

According to McGrath, as Oracle’s legacy customers commit to migrating their on-premises databases to cloud alternatives, the vendor’s platform and infrastructure business will begin to perform more similarly to its applications business.

“However, concrete proof that the SaaS business is scaling effectively in concert with the PaaS business and large enterprise commitment to move Oracle databases to the cloud prove Oracle will continue to scale its cloud segments beyond [its] current 12 per cent of corporate revenue, as both its on-premises applications and database foundation erode,” McGrath said.

Oracle Chairman and CTO, Larry Ellison, told shareholders that he expects more of the company’s big customers to migrate their Oracle databases and database applications to the Oracle Cloud.

“These large-scale migrations will dramatically increase the size of both our PaaS and IaaS cloud businesses,” he said, referring the example of one enterprise partner, AT&T, which has agreed to migrate thousands of existing Oracle databases containing petabytes of data, as well as associated applications workloads to the Oracle Cloud.

Ellison has been consistently bullish about Oracle’s position in the enterprise cloud services space, warning that the lead held by the undisputed cloud industry leader, Amazon Web Services (AWS), is “over”.

“Amazon is going to have serious competition going forward,” he claimed. “And we're very proud of our second generation of Infrastructure as a Service,” he said at the OpenWorld 2016 event late last year.

“We're going to be focusing on it and aggressively featuring it not only during Oracle OpenWorld but for the remainder of this fiscal year and next fiscal year and the year after that,” he said.

However, AWS holds a market majority of over 40 per cent, with other vendors such as Microsoft, Google and IBM working hard to gain ground in the burgeoning public cloud services market – at the expense of smaller players.

Yet if McGrath turns out to be spot on with her suggestion that Oracle is still at the “relative beginning” of its “long transition” into a cloud services vendor, then perhaps Ellison’s bold and, occasionally glib, comments about the competition are closer to reality than they may at first appear.

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