Editor’s note: Oracle (Nasdaq: ORCL), which has a big presence in the Research Triangle now following its acquisition of Tekelec, could have reported better first-quarter financial news. Currency headwinds and continued new software license stagnation put a damper on strong cloud performance, writes Meeghan McGrath, an analyst with Technology Business Research.
HAMPTON, N.H. – Behind overall flat year-to-year corporate performance, Oracle’s new software licenses continued to decline, amplified by unfavorable Euro to USD exchange rates, while software updates and support grew modestly. Oracle is the first bellwether company to report CY1Q15 earnings with the significantly weakened Euro against the U.S. dollar, and TBR expects this decline to be evident across other companies as they release their earnings.
Conversely, Oracle drove continued growth across its Cloud SaaS and PaaS Subscriptions and Cloud IaaS Subscriptions with triple-digit new customer wins in HCM, Customer Experience (CX) and ERP segments, totaling 800 new SaaS customers. Supported by more than 400 new PaaS customers and bookings growth of 200% sequentially (though the product was only released in September), Oracle executives believe PaaS represents an even bigger opportunity than originally expected, raising FY15 SaaS and PaaS bookings growth guidance to over 100%. While Cloud SaaS and PaaS Subscriptions grew $85 million year-to-year and appear to be the company’s growth engine, associated delivery expenses grew $91 million over the same period. This highlights the inherent margin hit that TBR expects traditional vendors to incur as they transition from a transactional business to a subscription-based sales model.
Oracle’s largely acquired Marketing Cloud creates market differentiation
On the Oracle cloud front, the company’s most recent market moves center around its marketing cloud — the segment where TBR notes Oracle has the most greenfield opportunity. The acquisition of Datalogix strengthens Oracle’s position in the marketing analytics arena with an established customer base of more than 650, including Ford, Kraft, Twitter and Facebook, and provides targeted insights on more than $2 trillion in customer spending, with data from 1,500 partners.
On par with other acquired marketing analytics firms such as Salesforce’s ExactTarget, Oracle’s ability to spend a rumored $1.2 billion enables it to add unmatched insight for marketing customers, rather than building a lesser solution organically, and significant scale and a valuable customer base to that acquired previously through BlueKai and Responsys. The acquisition not only elevates Oracle’s marketing analytics capabilities, but has also kept Datalogix’s intellectual property out of competitors’ hands, further solidifying Oracle’s ability to establish a leading position in the market.
The new X5 Engineered Systems focus on the core of the data center market while following Oracle’s traditional red-stack value proposition
Noted in Oracle’s CY1Q15 earnings, Engineered Systems continue to grow by double digits, leading TBR to conclude that Engineered Systems buoy an otherwise sinking hardware portfolio. To continue Engineered Systems growth, Executive Chairman and CTO Larry Ellison presented the newest generation of Oracle’s integrated systems line, X5, in January, carving out a new competitive niche against dominant converged infrastructure offerings such as the VCE system, a Cisco-EMC joint venture product introduced in 2009. Despite a message of increased performance, simplified management and reduced costs, TBR believes Oracle will be challenged to achieve its goal of winning the bulk of core data center business.
As with other Engineered Systems releases and Oracle’s overall red-stack value proposition, Ellison maintains that customers will reap faster deployment, increased performance and simplified management from Oracle’s solutions because the company has built the solution natively, developing all pieces to work together seamlessly, as opposed to customers “relying on a system assembled with parts from three different vendors,” which he contended “is more complex in the end.” Different from other red-stack propositions, however, Oracle for once is competing on price, ensuring that if the solutions, which the company claims come in at less than half the cost of competitors’, do not provide savings,
Oracle will discuss further discounts with the customer. TBR sees the advantage for customers already running Oracle applications and infrastructure to consider Oracle Engineered Systems X5; however, Cisco, EMC, VMware and RedHat solutions are established in the market, with use cases and years of experience, posing strong opposition for Oracle to win substantial market share beyond customers loyal to adopting an all-Oracle environment.
(C) TBR
