Editor’s note: Why is Oracle’s cloud business growing? It’s not hype. It’s not a miracle. It’s data execution, writes Technology Business Research Analyst Meaghan McGrath. Oracle has a major operation in the Research Triangle Park area built around its acquisition of Tekelec and further built upon the group with its recent deal for NetSuite, which integrated Durham-based Bronto Software after an acquisition.

HAMPTON, N.H. – Oracle’s cloud business provides concrete evidence it is here to stay as the company’s latest earnings report makes clear.

The finalized NetSuite acquisition, a two-thirds majority of new customer wins being in cloud, and exceptional growth in Database as a Service that brought revenue from the product over $100 million all drove Oracle’s total cloud revenue above a record $1 billion in CY4Q16.

Unfortunately for Oracle, cloud performance was hindered by worsening declines in license sales that were attributed to waning applications adoption rather than databases. The vendor expects that as the revenue base of licensed applications deteriorates, databases will remain relatively steady and overall new software license declines will become less pronounced. Further, the imminent improvement of cloud SaaS and PaaS revenue to being larger than license revenue will help Oracle effectively grow both its top and bottom lines in 2018.

Oracle CTO Larry Ellison again alluded to the $10 billion SaaS and PaaS revenue mark that Oracle is striving to beat Salesforce to, but made his statement brief, affirming he expects to deliver on the promise but tapering expectations that “it will be close.” TBR notes that while Salesforce as a whole is expected to eclipse $10 billion with the close of CY17, TBR projects that the subscription portion of that will fall short of the mark.

This projection gives Oracle six quarters until the close of its own fiscal year in mid-2018 to increase its SaaS and PaaS revenues by 3.4 times their 2016 total. NetSuite subscription revenue additions ($708 million in its last four quarters public) and PaaS acceleration will help Oracle at least eclipse $5 billion in CY17, but it will take additional cloud sales efforts and acquisitions to drive that figure beyond $10 billion before Salesforce.

Regardless of Oracle’s ability to beat Salesforce to $10 billion, the vendor is effectively executing on the more important goal of becoming a leading cloud vendor, evidenced by its ability to weather 2016 intact and the promise of cloud growth more than offsetting its legacy business declines in 2017.

Cloud has eroded the opportunity for Oracle’s traditional hardware assets, but engineered systems maintain relevance in hybrid IT environments

Evident at Oracle OpenWorld 2016, Oracle’s hardware business continues to invest in engineered systems as the sustainable portion of its portfolio. Server adoption declines and the sunsetting of certain acquired MICROS assets have pressured the business unit, more than consumed the growth in engineered systems and delivered sustained revenue declines.

TBR expects that through 2018, the Oracle hardware unit will see more supportive growth from the engineered systems business, helping to mute remaining declines in more traditional hardware product areas. This inflection will result from enterprise investments in engineered systems that properly complement their strategic cloud investments, to enable an interoperable hybrid IT environment as businesses incrementally migrate to cloud offerings.

(C) TBR