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Oracle’s Cloud Strategy

Posted on Friday, Oct 5th 2012

Gartner estimates that the worldwide cloud computing market will be worth $58 billion this year, compared with $50 billion last year. Big players are focusing on growth within this market. Earlier this week, at Oracle’s OpenWorld conference, Oracle (Nasdaq:ORCL) CEO Larry Ellison announced the company’s plans to grow in cloud computing in his keynote address.

Oracle’s Financials
Oracle’s Q1 revenues fell from $8.37 billion a year ago to $8.18 billion, missing the market’s expectations of $8.41 billion. Revenues were impacted by declining sales in the hardware segment. EPS of $0.53 was in line with market expectations.

By segment, software revenues grew 4% to $5.71 billion, with new software licenses and cloud-based subscriptions growing 5% to $1.57 billion and software license update and product support revenues recording a 3% growth to $4.14 billion. Hardware systems revenue fell 19% over the year to $1.35 billion.

For the current quarter, Oracle expects revenues to grow between 0% and 4%, compared with the market’s projections of 5% growth to $9.22 billion. Oracle’s EPS projections of $0.59-$0.63 were in line with the Street’s projections of $0.61.

Cloud Solutions are the Future
Oracle is focusing on the cloud computing segment. After reporting its $3.4 billion acquisitions of cloud computing players Taleo and RightNow, the company is working to sell its cloud offerings.

Last quarter, Oracle reaped $222 million in revenues from the cloud computing market. Some of its cloud customers include names like Adobe, Cisco, and Cox Communications. Oracle believes that it has an advantage over the other cloud players such as Salesforce.com because of its ability to support both private and public clouds. Oracle claims that cloud offerings from vendors such as Salesforce.com ensure that customers are “stuck with the platform and other infrastructure that the company selling it has running in their data center.” But, says the company, its own cloud offerings such as the Fusion app let customers decide which cloud they want to operate on. Of the 400 customers for Fusion applications, Oracle has nearly 67% operating on Oracle’s public cloud. The rest are working with these applications through dedicated machines on premise.

Oracle is selling its cloud services by claiming to be able to deliver increased security, reliable industry-standard practices, and a higher quality of service. It is also selling extensively to small and medium-sized businesses to generate more revenues.

Finally, it is also launching newer products in the space. Some of its recent cloud products include a new cloud enterprise manager, 12c, and a new computing hardware for the cloud. The Enterprise Manager offers a complete cloud life cycle management solution that lets businesses set up, manage, and support enterprise clouds and traditional Oracle IT environments from applications to disk. It comes with guarantees such as reducing downtime by up to 90%, improving productivity by 75%, and reducing capital expenditures on servers by at least 20%.

Social Offerings on the Rise
Besides the cloud, Oracle is also working to expand its social offerings. It released a Social Relationship Management Suite (SRM), which is an enterprise service that lets companies engage with, create, market, and analyze interactions across social platforms real-time. The SRM suite is integrated with Oracle’s enterprise applications and enables organizations to use these social tools to transform corporate business processes and systems.

Oracle’s Acquisitions
Oracle recently quashed rumors that it plans to buy  out database services provider NetApp. It claims that it is not looking for any big acquisitions. But small acquisitions continue to come its way. Earlier last month, it acquired New York–based social recruitment software company, SelectMinds. SelectMinds’ applications empower recruiters, hiring managers, and employees of organizations to leverage social connections to advertise job opportunities and source referrals. Organizations can use these apps to market their brand and manage corporate alumni relationships. Oracle plans to leverage the acquisition for social sourcing capabilities and to be able to develop a social network solution for recruiting, candidate sourcing, and talent management.

In July of this year, it announced the acquisition of Xsigo Systems, a provider of network virtualization technology. Xsigo solutions are designed to simplify and reduce the cost of deployment on the cloud infrastructure and operations by enabling customers to connect any server to any network and storage. The acquisition will help Oracle deliver a complete set of virtualization capabilities for cloud environments.

The market has reacted positively to these moves. The stock is trading at $31.90, with a market capitalization of $157.7 billion. It touched a 52-week high of $33.81 in October 2011.

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