Oracle Is Fighting Back

Nick is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Right before Oracle (NASDAQ: ORCL)'s strategic alliance with NetSuite to deliver integrated HCM and ERP cloud services for mid-size customers, Oracle has made two significant partnership movements. Oracle unveiled a “strategic partnership” with Salesforce.com (NYSE: CRM) right after its deal with Microsoft (NASDAQ: MSFT) announced a day earlier on June 24. As promised by management, Oracle is making a series of partnership movements to enhance its cloud capabilities.

Microsoft deal

After partnering with Microsoft, Oracle apps are now certified to run on Windows Server, Hyper-V, and Windows Azure, whereas Oracle’s apps were only certified to run on Windows server before the deal. Oracle’s databases and WebLogic middleware can also be certified on Windows Azure now. In addition, both companies are expanding Java support with Oracle certifying Java to run on Hyper-V and Windows Azure. From rivals to partners, it is a win-win deal for both companies.

An analyst from Forrester Research indicated that the alliance should help Microsoft’s Azure compete better with other web-accessed cloud services while make Oracle’s offerings more competitive to other “open-source” alternatives.

Salesforce.com partnership

The deal with Salesforce.com includes a comprehensive nine-year partnership encompassing all three tiers of cloud computing: Applications, Platform, and Infrastructure. To put it in a simple way, it is “the simplicity of Salesforce.com combined with the power of Oracle," as quoted from Marc Benioff, Chairman and CEO of Salesforce.com.

Oracle will integrate Salesforce.com with Oracle’s Fusion HCM and Financial Cloud while providing the core technology to power Salesforce.com’s applications and platform. On the other hand, Salesforce.com will standardize Oracle’s major systems and database, as well as Java Middleware platform while implementing Oracle's Fusion HCM and Financial cloud applications throughout the company.

What's there for Oracle's new partners

Oracle is making a series of partnership movements to step up against its competition in the cloud market, and so are Microsoft, Salesforce.com and NetSuite. With the new partnership, Microsoft can now better compete with Amazon Web Services, or AWS, where Amazon and Oracle have worked together to provide businesses with a scalable, reliable, and cost-effective business application platform. With added flexibility and choice offered via its new hybrid cloud solutions, Microsoft can now boost up its competitiveness in the fast expanding cloud market.

As for Salesforce.com, the new partnership allows it to compete better against companies like IBM and Amazon as data is increasingly going mobile and moving from customer-owned computers to the cloud. With the new partnership, Salesforce.com will gain three major advantages: cutting database server costs "in half," penetrating into Oracle customers, and obtaining Oracle as a customer.

Lastly, the deal between Oracle and NetSuite will help minimize the conflicts between two companies as both will now focus on mid-sized customers instead of Oracle’s huge ones. Oracle can also step up its competition against younger rival WorkDay in the market of human capital management.

Oracle is fighting back

As Oracle transitions some of its business to the cloud-based software-as-a-service model, it has a tough time combating a sluggish macro economy and declining hardware business. While Oracle failed to deliver revenue growth for hardware in the last quarter, the management is now predicting a turnaround next quarter.

After missing two consecutive quarters of sales estimates, Oracle executives blamed the company's revenue shortfall on the economy, with its Asia-Pacific business suffering the biggest decline. However, with this series of major partnership announcements, Oracle is finally realizing that it needs to stay relevant and competitive as the landscape continues to shift toward web-based services. Oracle is stepping up with its cloud offering by converting two of its rivals to partners.

What now?

With these newly announced strategic partnerships and continuous improvement for its sales force execution, Oracle is still in the game. As for the hardware systems, management believes that growth in total hardware can be seen as early as Q1, 2014 and the high gross margin from hardware could help increase overall gross margins even more over time.

Oracle remains financially sound as its cash flow increased to $14.2 billion over last four quarters. The company now has $32.2 billion in cash and marketable securities. The company is also restarting its dividend earlier than planned while increasing quarterly dividend to $0.12 per share. Additionally, management has authorized a $12 billion share repurchase program.

Bottom line

With the recent pull back, it is a good opportunity to slowly accumulate Oracle shares. By realizing its weakness and starting to strengthen its offerings by partnering with former rivals, Oracle shows its determination to stay competitive and boost its cloud offerings while transitioning to the cloud-based economic model.

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Nick Chiu owns shares of Oracle. The Motley Fool recommends Salesforce.com. The Motley Fool owns shares of Microsoft and Oracle.. 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!

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