Bloomberg News

Oracle Plans Cloud Push to Take On Salesforce, Workday

September 28, 2012

Oracle Corp. (ORCL:US) plans to unveil the first new version of its flagship database program in five years and an expanded line of high-end servers, as the software maker steps up its effort to win more cloud-computing business.

At its OpenWorld conference in San Francisco on Sept. 30, Chief Executive Officer Larry Ellison will show the new 12c database, designed for cloud computing, and more powerful systems to handle ballooning amounts of corporate data more efficiently, Mark Hurd, co-president at Oracle, said in an interview yesterday.

Oracle has doubled sales (ORCL:US) in the past five years and boosted annual profit (ORCL:US) by gobbling up business-software companies to challenge SAP AG (SAP) while also selling customers its database, which accounted for about 48 percent of sales in the latest fiscal year. At OpenWorld, Oracle will seek to show there’s an alternative path to cloud computing -- where programs are stored and managed remotely -- than the no-hardware approach espoused by rivals such as Salesforce.com Inc. (CRM:US) and Workday Inc. (WDAY:US)

“This will be an important week for them coming up, to declare they’re in the cloud,” said Rick Sherlund, an analyst at Nomura Holdings Inc., who recommends buying Oracle shares. “Larry’s getting with the program in a big way.”

The 12c database will let Oracle serve multiple companies’ data-processing needs from the same information storehouse and will arrive by early next year, Ellison told analysts on a Sept. 20 conference call (ORCL:US). The company’s Exadata and Exalogic systems, plus its database, Java development tools and social media- analysis software, can be delivered to businesses as a service Oracle manages over the Internet, Hurd said.

Services Shift

“We’ll be giving you a cloud with the Exadata infrastructure,” Hurd said in the interview at the company’s Redwood City, California, headquarters. “You have the ability to change the economics dramatically.”

As International Business Machines Corp. (IBM:US), Microsoft Corp. (VMW:US) and VMware Inc. also shift toward selling products aimed at letting companies manage more of their systems and software as a service, it’s important that Oracle adapt as well. The new 12c database -- the c stands for “cloud” -- includes the ability that lets the software handle multiple jobs using “virtualization” technology, an advantage in cloud computing.

It has been five years since the company introduced a new version of the database, and Oracle is pitching its customers on the benefit of being able to move their computing jobs from their data centers to the cloud if the need arises, Hurd said.

Private Clouds

Oracle can remotely manage customers’ applications, database software, and server computers in so-called private clouds sitting inside companies’ own data centers to increase the peace of mind of chief information officers, said Sherlund, who is based in New York. Customers would get the benefit of Oracle’s package of technology without having to perform the installation and maintenance themselves.

Oracle is relying on the new products to help reverse a slowdown in growth and a stock price that has underperformed those of its rivals. Sales declined 2.3 percent in the fiscal first quarter, which ended Aug. 31, dragged down by a drop in the hardware business acquired from Sun Microsystems in 2010. New software license sales, a measure of freshly signed business, tapered to 5.1 percent growth from more than 16 percent a year earlier.

Oracle’s stock has risen 22 percent this year, compared with gains (ORCL:US) of 35 percent for SAP, and a 51 percent climb for shares of Salesforce.com.

Acquisition Strategy

Oracle has expanded sales and profit through its acquisition strategy. The company has spent more than $50 billion on more than 80 deals to add business programs that mostly run on servers and personal computers.

Still, it may be harder to grow through acquisitions in cloud computing, because those companies sell by subscription and don’t have steady streams of maintenance revenue that Oracle can immediately add, said Pat Walravens, an analyst at JMP Securities LLC.

“Cloud companies don’t lend themselves well to a rollup strategy,” said Walravens, who has a market perform rating on Oracle shares. “You just don’t get the same efficiencies.”

Software-as-a-service providers also tend to trade at higher multiples of sales than the businesses Oracle has traditionally bought, making deals relatively more expensive, said John O’Farrell, a partner at venture capital firm Andreessen Horowitz. Bloomberg LP, the parent of Bloomberg News, is an investor in Andreessen Horowitz.

‘Savvy Company’

Oracle has said it has signed $1 billion of cloud-computing business, including from its Oracle Cloud service, which includes Fusion human-resources and customer-relations applications as well as online programs from acquired (ORCL:US) companies Taleo and RightNow Technologies. The company will give an updated figure at a meeting with analysts on Oct. 4, Hurd said.

By contrast, Salesforce in its last quarterly report boasted a $4.1 billion backlog of signed contracts. Workday, which is preparing for an initial public offering, has also been winning deals for its online human resources and financial software, including an HR system for tens of thousands of Google Inc. employees.

“Oracle’s a savvy company -- they always figure out how to come from behind,” said Brent Thill, an analyst at UBS AG in San Francisco, who recommends buying the shares. “But they’re way behind in the cloud.”

To contact the reporters on this story: Aaron Ricadela in San Francisco at aricadela@bloomberg.net

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net


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Companies Mentioned

  • ORCL
    (Oracle Corp)
    • $45.8 USD
    • -0.20
    • -0.43%
  • CRM
    (salesforce.com inc)
    • $59.67 USD
    • -0.19
    • -0.32%
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