Enterprise Cloud infrastructure and applications technology provider Oracle Corporation reported fiscal Q3-2021 financial performance for the period ending February 28, 2021 this week.

The tone of Oracle’s senior executives remained rather upbeat and noteworthy in terms of direct messaging. However, equity analysts and Wall Street seems to have different perspectives considering a market amped with high growth expectations.

Oracle Cloud Applications

Among the headlines of financial performance were:

  • Total quarterly revenues rising 3 percent to $10.1 billion.
  • Cloud services and license support revenues up 7.3 percent to $7.3 billion.
  • Cloud license and on-premise license revenues rising 4 percent to $1.3 billion.
  • Recurring revenue as a percentage of total revenue now representing 72 percent of Oracle’s total revenues.
  • Q3 GAAP operating income up 10 percent to $3.9 billion with operating margin reported as 38 percent. GAAP net income was up 95 percent to $5.0 billion.
  • Operating cash flow over the prior four quarters reported as $14.7 billion, including $3.7 billion in the most recent quarter.

In executive commentary, CEO Safra Catz indicated to analysts and investors that the company had a great quarter and executed well against its growth plan. Noted was that strategic back-office Cloud applications are now on an annualized revenue track of $4 billion, growing 24 percent in the recent quarter. Oracle’s Fusion ERP application was noted as up 27 percent and NetSuite’s ERP up 22 percent.

Oracle further reported that its Board of Directors increased the quarterly divided by 33 percent and authorized an additional $20 billion for the repurchase of Oracle shares. That is a healthy reward for investors.

What apparently caught the most attention of equity analysts and investors was the company’s guidance on fiscal Q4 performance. That outlook included a revenue growth estimate of between 5 percent to 7 percent in U.S. dollars, or 1 percent to 3 percent in constant currency.

Prior to this week’s financial report, there was a 12 percent run-up of the company’s stock price on increasing optimism that Oracle was gaining noticeable momentum in both the Cloud infrastructure and Cloud business software applications area.

Last week, Barclay’s raised its rating of Oracle anticipating that Cloud revenue growth would accelerate and provide added reward for investors.  This was the anticipation to this week’s reporting, but financial media responded with a headline of “tepid” guidance for investors and questioning if market momentum was indeed increasing.

 

The Other Commentary

Beyond the financial performance was a narrative from the company’s Chairman and CTO Larry Ellison, a technology industry icon among icons.

First, let’s provide some context.

As a supply chain industry and B2 Cloud technology analyst, I have observed Ellison for over 20 years. Larry is brilliant and tends to be direct and to the point concerning technology topics.  Some view him as brilliant, others as arrogant. It is akin to a college level lecture when you walk away and discover that you witnessed an evidence-based dissertation and conclusion.

He further has the ability to call investor attention to what Larry perceives as the key market dynamics occurring in a technology sector, and specifically how Oracle is performing or outperforming in technology determinants.

In previous quarters, one target has been Amazon in the presence of Amazon Web Services’ (AWS) explosive growth in the Cloud Infrastructure and database platform services market segment. Ellison’s Oracle Open World presentations would often be a discourse on the most specific performance determinants of Oracle’s database and more robust information security compared to AWS. His session would usually conclude with why you would elect to buy AWS, given such evidence.

In the Cloud business application segment, the target, or perhaps the victim, has been archrival SAP SE.  These two companies have had a lot of history in discourse as to market growth and applications features and performance. In prior Oracle financial performance commentary, Larry has communicated that not only does his company have a ten-year development investment resulting in broader and more extensive Cloud based applications, database and Cloud infrastructure than SAP, customers are increasingly turning to Oracle.

At this week’s briefing, Ellison made specific mention of research firm Gartner’s Magic Quadrant report evaluating Cloud ERP applications, and where Oracle was ranked far in front of other providers. He further cited specific report commentary indicating that SAP’s own reference customers ranked their provider in the lower half of Cloud providers.

Equity analysts and investors have responded by asking for more detailed evidence of such claims. In other words, provide the evidence. This was the earnings event when Ellison elected to provide such detail.

He outlined two categories of customers. The first were those companies that have elected to fully replace SAP under the criteria of replacing the company’s full financial management applications with Oracle’s Cloud financial management software and other add on business applications software. The second category, termed partial replacement, were those companies that reportedly are retaining SAP for backbone financials or certain business subsidiaries, but are adopting surrounding applications such as human resource management, procurement, and supply chain applications.

I expected that Ellison would name a couple of customer names in each category. Instead, he elected to name and briefly profile upwards of 100 specific company names among both categories.

It was akin to a prosecuting attorney providing incredibly detailed summary arguments to a jury in a court trial.

In the question-and-answer period with analysts, Ellison responded to two follow-on questions relative to whether SAP is losing its perceived lock on customers. His answer indicated that besides the companies he mentioned: . we have some that are much larger and absolutely shocking. I’ve been alluding to these, but sometimes we’re in the middle of an 18-month implementation. And the customer doesn’t want any mention

 

Supply Chain Management Technology Adoption

Because we are a supply chain management technology blog, and because we choose not to insert ourselves in the middle of yet another round of bitter rivalry among two software giants, we would rather focus our commentary on the supply chain management technology adoption trending.

Within the past few investor briefing calls, there has been slight mention of Oracle’s supply chain management application adoption, even in the category of surround adoption. We received information from Oracle’s Cloud SCM executive teams that customer attraction was ticking upwards and so were initial implementation.

Some of the specific companies mentioned at this week’s earnings call were:

Integra Life Sciences, a provider of high-quality neurosurgical devices and regenerative tissue technologies (Oracle Cloud Transportation Management)

TPS, an industrial manufacturer of rail cars in North America (Procurement and supply chain management)

Global parcel transportation and logistics services provider FedEx (Oracle Fusion ERP, Oracle SCM Cloud)

First Solar, North America’s only remaining maker of solar panels (Oracle Fusion ERP and supply chain management)

CEMEX, A Mexico based concrete supplier to multiple regions (Oracle Fusion ERP and supply chain management)

Postcon, the second largest mail carrier in Germany (Oracle Fusion ERP and supply chain management)

Global baking goods provider Grupo Bimbo (Oracle Fusion ERP and supply chain management)

An unnamed North America and European manufacturer of ATM machines (Oracle Fusion ERP and supply chain management)

 

Reader Takeaway

The takeaway message is that amid an ongoing pandemic, businesses are indeed making investment decisions for investments. That is because they are compelled to do so after the COVID disruption learnings over the past year.

Here’s what needs to be considered:

Supply chain technology investments will vary by specific industry, and by the needs of specific businesses within industries. Many companies have now accelerated their needs for forms of digital supply chain transformation and or added agility, supply resiliency and risk management. The key determinant remains business, cost, and time-to-benefit driven.

Cloud adoption provides businesses the ability to establish their transformation frameworks and adsorb new technology in smaller increments, with each increment providing measured benefits.  Being assured of continuous quarterly releases of added functionality ensures a pipeline of continuous innovation and added functionality support. When economies do improve, businesses will either have made the investments to leverage this added technology enablement or have an established path that can be accelerated.

For those readers dependent on an existing ERP backbone, a surround strategy for supply chain business process needs does have applicability and can be supported by technology providers, including other ERP providers.

It is incumbent for each technology provider, whether broad enterprise, or best-of-breed specialty focused, to demonstrate that provider’s capabilities to best support end-to-end supply chain management transformational needs. At the same time, there must exist robust capabilities to integrate information across homogeneous as well as heterogenous applications and B2B Cloud platforms. The goal is to eliminate functional and business islands of unconnected information. Finally, any providers claims must be substantiated by customer and user testimonials regarding level of support rendered by such providers in good times, and in challenging times.

 

Bob Ferrari

© Copyright 2021, The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.