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Introduction

Oracle's fiscal 2015 results are mixed. It will take time for its booming cloud business to make up for the slowing down of its more traditional on-premise business. However, the company asserts that it will bounce back in fiscal 2016, partly as a result of its expanding portfolio of public cloud services.

Highlights

  • Oracle has spent the past couple of years emphasizing the fact that it is not only transforming into a cloud-centric business, but also that it is firmly in control of the transformation process. This control is paramount to achieve its revenue and profitability ambitions, and maintain the right balance between new upfront-license-plus-maintenance and new cloud subscription revenue growth. This is easier said than done. The contrast between new software license revenue and new public PaaS and SaaS cloud subscription revenue grew particularly stark in the last quarter of fiscal 2015.
  • As Larry Ellison, the company's executive chairman and CTO, put it during the fiscal 2015 earnings conference call, public SaaS and PaaS cloud subscription revenue is "stunningly profitable." That may be the case in the long run, but in the meantime, SaaS and PaaS operating expenses grew much faster in fiscal 2015 than revenue. As a result, SaaS and PaaS are likely to have contributed to the shrinking of the "new software and PaaS/SaaS cloud" margins.
  • Traditional software licenses sales slowed down significantly in the last quarter ended May 31, 2015 to a larger extent than that anticipated by Wall Street. On the other hand, public cloud services took off to a greater extent than that anticipated by Oracle. Both sides partly overreacted in commenting on the situation. With the help of this report, their spin should be taken with a pinch of salt and put in the right context.

Features and Benefits

  • Details Oracle's current situation from the perspective of its ongoing transformation into a cloud service provider.
  • Analyzes Oracle's fiscal year 2015 revenue results from a cloud service perspective.

Key questions answered

  • Where is Oracle in its ongoing transformation into a cloud service provider? How is Oracle controlling, or not, the transformation?
  • How big was cloud computing in Oracle's fiscal 2015 results? Why? How big is it expected to grow in fiscal 2016?

Table of contents

Summary

  • Catalyst
  • Ovum view
  • Key messages

Recommendations

  • Recommendations for enterprises
  • Recommendations for vendors

At revenue level, Oracle is feeling the pains of cloud transformation, and so is Wall Street

  • Oracle's cloud transformation is well advanced, and the organization is ready to step up
  • Keep an eye of Oracle's efforts to balance on-premise and cloud growth

At margin level, it will take time for public cloud subscription revenue to deliver on its promises

  • Oracle needs to keep maintenance margins up
  • Public SaaS and PaaS revenue may be stunningly profitable, but only in the long term
  • Infrastructure investments are unlikely to significantly challenge margins

Even if Oracle delivers on its fiscal 2016 ambitions, cloud transformation will be ongoing

  • Oracle is right to be bullish for fiscal 2016
  • Oracle's cloud transformation will take longer to solidify
  • Oracle needs to expand from technology to ecosystem services

Appendix

  • Further reading
  • Author

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