The headline news coinciding with Oracle’s first quarter earnings report for Fiscal 2015 was that Larry Ellison was elected Executive Chairman and appointed Chief Technology Officer, and that Safra Catz and Mark Hurd were promoted to CEO of Oracle.
If the analysts on the September 18 earnings call seemed unruffled by these title changes, it might be because Oracle is showing strong momentum in many of its key segments, a seasonally volatile Q1 notwithstanding. They may have also been reassured by the obvious continuity and harmony displayed by the executive team, which has been working together side-by-side for the past four years.
When Wells Fargo analyst Jason Maynard said he would “miss” Ellison on these quarterly earnings calls, the newly minted Executive Chairman replied, “You should be so lucky. I'm staying on the calls… I apologize to everyone for that,” eliciting laughter on the line.
Ellison also made clear exactly how the quarter lines Oracle up for the future: “We are all focused on this unbelievable opportunity to be the one big company, the one big company with all the resources to make this transition to the cloud and become the leader in that next generation of computing. It's an opportunity we are all focused on and we're not going to miss it.”
Oracle reported revenues of $8.6 billion for Q1 FY15. Here’s how Ellison, Catz, and Hurd explained the numbers.
1) Oracle Cloud is gaining hundreds of new customers. Oracle Cloud revenue totaled $477 million, growing 29%. Software-as-a-Service (Saas) and Platform-as-a-Service (PaaS) revenues were $339 million, up 31% from last year and up 4% sequentially. Infrastructure-as-a-Service (IaaS) was $138 million, up 25%. Bookings grew 54% – 3 times last year's growth rate. And Cloud revenue grew 32% in dollar terms, twice last year's growth rate. “We got 500 new Cloud customers in the quarter,” said Hurd. “One hundred seventy of them were HCM customers.” Ellison said, “We added more ERP customers in the Cloud this past quarter than Workday has had in the life of their company.” Hurd said, “We're focused on becoming number one in the cloud.”
2) SaaS adoption is great for customers. SaaS helps customers reduce capital expenditures because they don’t have to buy as much hardware and can lower operating expenses because they don’t have to maintain the hardware or update the software. “We expect that as the customer pays more to Oracle [for SaaS], this increase will be more than offset by a reduction in their costs of implementing and running their own systems,” said Catz.
3) On-premise systems are going strong. On-premise ERP license growth was “strong” in North America, and so was Saas ERP, according to Hurd. Catz noted that “Customers have started to move from on-premise systems to the cloud, but with so many on-premise customers and only 30% of our support base in applications, we haven't seen a reduction in software updates and product support renewal rates, which continue at their usual high levels.”
4) Engineered Systems reach a milestone. Oracle shipped its 10,000th Engineered System during the quarter and has now generated $3 billion over the lifetime of the product. Oracle Engineered Systems grew by double digits, and now make up a third of the company’s hardware sales. “While we're growing double digits, our competitors are declining double digits,” said Hurd.
5) Database cloud service is imminent. At Oracle OpenWorld 2014, the company will roll out its new Database Cloud Service -- a new multi-tenant database-as-a-service offering that will let customers migrate their existing apps and databases to the cloud “with the push of a button,” said Ellison. Data will be compressed ten to one and encrypted for secure and efficient transfer to the cloud, with no reprogramming. “Every single Oracle feature -- even our latest high-speed in-memory processing -- is included in the Oracle Cloud Database Service,” Ellison said. “Hundreds of thousands of customers and ISVs have been waiting for exactly this. Database is our largest software business and database will be our largest cloud service business.”
6) Vertical apps will give Oracle wider and deeper reach. Oracle continues to expand the number of industry-specific applications it offers in areas such as financial services, banks, telephone companies, retailers, hotels and restaurant chains. Said Ellison, “It gives us an opportunity to give them a complete solution, which is strategic to their business and has much higher value than selling technology components, which is what the industry has been doing … historically.”
7) Doing more for customers. Oracle is moving from just selling software that customers installed in their own data centers to hosting and maintaining software in the cloud, providing storage, and, thanks to economies of scale, passing along savings to customers. “The promise is for Oracle to be a much larger and much more profitable and much more critical supplier to our customers, a much more strategic supplier to our customers,” Ellison said.
Ellison, Catz, and Hurd conveyed a common message: Oracle wants to be number one in the cloud, while also delivering record levels of cash flow. On that front, Oracle’s cash flow increased to a record $14.7 billion over the last four quarters, and an all-time high of $6.5 billion for the quarter, up 6% from Q1 last year.
