Oracle’s Cloud Business Grows – WSJ

Oracle Corp.

is making headway in its yearslong shift into the cloud-software market, as it steers longtime enterprise customers out of the in-house databases that made Oracle an information-technology powerhouse, industry analysts said.

Oracle on Thursday said total cloud revenue grew 24% to $ 2.8 billion in the quarter ending Feb. 28, while companywide revenue was up 4% from a year earlier to $ 10.51 billion.

For years, Oracle’s main line of business was licensing software for companies’ on-premises databases and providing maintenance and other services, a revenue stream that is ebbing as businesses increasingly shut down costly servers and begin renting computing capacity and business software from third-party cloud vendors, on an as-needed basis.

“Cloud remains a relatively small percentage of Oracle’s overall revenue so far,” said Adam Ronthal, a research vice president at IT research and consulting firm Gartner Inch.

“However, the cloud is clearly the focus for the delivery of new features and capabilities.”

Scott Bickley, a principal research director at Info-Tech Research Group, said rather than compete directly with much larger cloud rivals, Oracle has sought to retain its legacy customer base by providing a cloud-based alternative to in-house systems. Most companies are wary of changing database providers, which involves a wholesale transfer of data and applications, he said.

“They’ve seen a large percentage increase in cloud databases and other services, but it’s from a low base.” Bickley said. “When you look at the market share for cloud providers, they’re barely a blip on the radar.”

Oracle lags far behind cloud market front-runners like Amazon.com Inc.’s

Amazon Web Services and Microsoft Corp.’s

Azure.

“Oracle is heavily focused on shifting both its on-premises application customers and its Oracle database customers to the cloud,” said Eric Newmark, group vice president for International Data Corp.’s software-as-a-service, enterprise software and world -wide services division.

Mr. Newmark said part of Oracle’s strategy is to make cloud migration as easy as possible for its customers, by offering both technical and strategic support. With its own cloud infrastructure underlying its applications, he said, the company has also been able to boost its strength in other areas, such as its enterprise applications and vertical software tools.

Still, transforming into a cloud vendor is not cheap. Oracle’s cloud services and license support costs rose 23% in the third quarter, while total operating expenses were up 8% at $ 6.69 billion, the company said Thursday.

In December, it announced a roughly $ 28.3 billion deal to buy cloud-based electronic-medical-records company Cerner Corp.

—Oracle’s largest deal ever — in a move aimed squarely at accelerating its cloud-computing business, analysts said. The deal is expected to close later this year.

“Our cloud business is on an absolute roll, you can see it in the numbers,” Oracle Chief Executive Safra Catz said Thursday in an earnings call with analysts. “Cloud is a fundamentally more profitable business than on-premise databases.”

However, Oracle said net income fell 54% to $ 2.32 billion in the third quarter, from $ 5.02 billion a year earlier. It blamed the loss on a tumbling stock price of gene-sequencing company Oxford Nanopore Technologies PLC, and an operating loss at chip maker Ampere Computing. Oracle is an investor in both companies.

Ms. Catz said the company expects fourth-quarter earnings of $ 11.56 billion to $ 11.79 billion.

Write to Angus Loten at [email protected]

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