Can Oracle Take Your Portfolio to the Cloud?
Amal is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Oracle (NYSE: ORCL)is known for its innovative and simple IT solutions. Its major focus on venturing into cloud computing and expanding the horizons of its product catalog through various acquisitions has led Oracle to increase its market share, creating jitters among its core rivals.
The company claims its recently released product, Oracle Enterprise Manager 12c, is the most popular database developed for cloud computing technology and provides the optimum utilization of resources for various IT solutions.
Despite the global economic recession, the overall global performance was considerably strong barring revenue, which was adversely affected in some geographical regions.
Company records a growth in revenue despite recession & non-performing division
$10 billion in revenue was recorded from the company's software sales, which is a growth of 6% from the previous year. It also recorded a 7% increase in revenue from software license and support, mainly due to the SAAS application provided by Oracle, and it's gaining popularity for being cost effective to mid and small business houses.
The hardware division noticed a decline of revenue by 14% due to fierce competition from various hardware manufacturers like IBM (NYSE: IBM) Even with this decline in revenue, the total revenue for the year grew by 2%, amounting to $37 billion. Oracle is confident in increasing its sales revenue of its hardware division based on the fact that it’s T5 and M5 servers feature the fastest microprocessor in the world as compared to Intel and IBM P7. The refreshed SPARC servers will also contribute major sales revenue in the future to its hardware division.
The deployment of the cloud in various organizations is a prime focus in the global IT solutions scene. This will have a direct impact on Oracle's revenue in the near future.
Tie-up that will boost future revenue
Once bitter rivals, Oracle and Microsoft are joining together to bring Oracle to the Windows cloud. This partnership will help Oracle in acquiring more customers currently on Windows cloud to deploy their Oracle database on cloud.
Oracle also joined forces with NetSuite (NYSE: N) to compete with SAP, with a major focus on increasing its customer base for small and medium sized companies by providing HR software on the cloud.
This should certainly help NetSuite, as the company didn't have a solid presence in human capital management, or HCM, apps. Oracle's partnership will help NetSuite sell Oracle's HCM applications to its huge customer base, which is around 16,000 globally. Oracle believes that the HCM market is under-penetrated, and its partnership with NetSuite will help it command a bigger piece of the pie.
NetSuite was established in 1998 for providing ERP business solutions, but with time it migrated to SAAS hosted on cloud servers. NetSuite is one of the fastest growing companies in the space and recorded an organic growth of 49% in 2012. It is listed in the top 15 companies for FMS (Financial Management System) vendors. Its global customer base has increased appreciably and stands at more than 16,000.
Its recently declared financial results revealed a top-line of $101 million, while its EPS exceeded expectations at $0.05 per share, against the estimated $0.02 per share.
Some points to consider for investors
Oracle pays a dividend of $0.12 per share to its shareholders. This is a 100% increase as compared to the fourth quarter of 2012. A regular dividend keeps long-term investors interested.
Management authorized the repurchase of an additional $12 billion worth of shares in future quarters in accordance with its repurchase policy.
It achieved around 19% growth for both EPS and free cash flow over the last eight years. This is a remarkable growth in adverse economic conditions. The company also purchased around 85 million shares in the current quarter for a total of $2.8 billion with an annual repurchase of nearly 350 million shares for a total of $11 billion.
Salesforce.com is one of Oracle's primary competitors for its cloud computing database product.. Saleforce.com has also released a product for file sharing, which could have a partial impact on Oracle's market.
SAP AG (NYSE: SAP) is a major competitors for Oracle in the ERP solution segment of Oracle applications. SAP has been constantly increasing its expenditure on cloud based services just to expand it customer base.
To expand its presence in the cloud computing business, SAP acquired SuccessFactor for $3.4 billion in December 2011, a pioneer in providing HCM solutions on cloud. Ten months down the line, in October 2012, it acquired another company, Ariba, well known for its cloud-based commerce. Ariba was bought for $4.51 billion.
SAP’s recent financial results revealed revenue of 824 million euros, which amounts to approximately $1 billion. Major contributions from cloud based services and its much talked about SAP HANA platform on cloud drove results. This is the highest recorded revenue SAP has ever posted on a quarterly basis.
IBM, a leader in hardware and high-end enterprise servers, has always been a threat to the hardware division of Oracle. The new flash technology for high-end servers is being widely accepted for server performance and stability. IBM planned to spend $1 billion in flash technology and to increase its server catalog portfolio, which could mean competition for Oracle SPARC T5 and M5 servers.
The impact of cloud has been phenomenal, and even IBM could not resist getting in, which compelled it to introduce MobileFirst, a fusion of mobile expertise and cloud-based services. Revenue from the service grew by 70% in the first half of the year.
The acquisition policy and various partnerships being adopted by Oracle will benefit the company in the longer run. I think you won’t regret having the company in your portfolio if you're patient enough to wait for these measures to pay off.
The tech world has been thrown into chaos as the biggest titans invade one another's turf. At stake is the future of a trillion-dollar revolution: mobile. To find out which of these giants is set to dominate the next decade, we've created a free report called "Who Will Win the War Between the 5 Biggest Tech Stocks?" Inside, you'll find out which companies are set to dominate and give in-the-know investors an edge. To grab a copy of this report, simply click here -- it's free!
Amal Singh has no position in any stocks mentioned. The Motley Fool owns shares of International Business Machines.. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!