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Does Oracle Cloud have an on-premises problem?

Does Oracle Cloud have an on-premises problem?

Total Oracle cloud revenues were up by 32 per cent to US$1.6 billion during the latest quarter

Larry Ellison - Chairman and CTO, Oracle

Larry Ellison - Chairman and CTO, Oracle

Oracle’s latest quarterly results showcase the company’s star performer, its cloud business, while also highlighting a continued reluctance of the vendor’s legacy customers to shift workloads from their on-premises deployments.

The tech giant revealed its third quarter results on 19 March, reporting a six per cent increase in revenues US$9.8 billion, compared to Q3 last year. Cloud and on-premises software revenues were up by eight per cent to US$8.0 billion.

Cloud software-as-a-service (SaaS) revenues, meanwhile, were up by 33 per cent to US$1.2 billion. At the same time, cloud platform-as-a-service (PaaS) plus infrastructure-as-a-service (IaaS) revenues were up 28 per cent to US$415 million.

Total cloud revenues were up by 32 per cent to US$1.6 billion.

Overall, the company reported a net loss for the period of more than US$4 million, representing a 41 per cent year-on-year fall form he net income of US$2.24 billion it reported for the same period the year prior.

This drop was largely due to US$6.9 billion one-time income tax expense in the wake of the US Tax Cuts and Jobs Act.

“Our Fusion ERP and HCM SaaS applications suite revenues grew 65 per cent in the quarter,” Oracle CEO, Mark Hurd, said. “Our cloud SaaS applications business is rapidly approaching [US]$5 billion…and it’s still early days.

While the vendor’s cloud revenues seem to be skyrocketing, much of the growth appears to be coming from new customer activity, with Oracle revealing that a relatively small per cent of its pre-existing on-premises applications customer-base has made the move to Oracle’s cloud.

“Less than 15 per cent of our on-premise[s] applications customers have begun to migrate their applications to the cloud,” Hurd said.

Although the percentage of existing customers yet to make the migration remains notably high, given that the company has been pushing its cloud-based solutions for some years now, Hurd framed the figure as proof that the vendor’s cloud business has substantial growth potential going forward.

“As the other 85 per cent of our applications customers start to move their applications to the cloud, we have a huge opportunity in front of us,” he said. “We expect to more than double the size of our SaaS business very quickly.”

Oracle founder and CTO, Larry Ellison, has made a habit of talking up Oracle’s cloud growth and forecasting the company’s impending leadership of the global cloud market, despite the continued dominance of Amazon Web Services (AWS), Microsoft and others.

And while a 32 per cent increase in total cloud revenues for the latest quarter stands as an impressive achievement, it remains substantially less than the 40 per cent growth that analyst firm, Synergy Research Group, said the global cloud market was growing by as of the third quarter of 2017.

According to Synergy Research, Microsoft, Google and Alibaba Cloud all experienced a greater percentage of annual growth in Q3 2017 than Oracle. AWS, meanwhile, remained bigger than its next five largest competitors combined.

It is conceivable that the reluctance of the vast majority of Oracle’s legacy on-premises applications customers to make the migration to cloud could be hampering the vendor’s growth in that area. As Hurd openly suggested, it certainly represents a huge, as-yet untapped potential for the company.

The trick for Oracle will be finding a way to expedite the conversion of its on-premises applications customers to cloud customers going forward. Until they actually migrate, those customers remain nothing more than Hurd's "huge opportunity in front of us". 

Of course, the company’s cloud growth is doing quite well just off the back of new customers stepping into the fold, a trend that is likely to continue, given some of the new goodies Ellison announced along with the latest financials.

“The Oracle autonomous database is now fully available in the Oracle Cloud,” Ellison said. “And there are more autonomous cloud services to come. During this calendar year we expect to deliver autonomous analytics, autonomous mobility, autonomous application development and autonomous integration services.

“Oracle’s new suite of autonomous PaaS services delivers an unprecedented level of automation and cost savings to our customers."


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