Yesterday at the close of the stock market, Oracle reported its FY17-Q1 financial performance results. The enterprise technology provider’s headline was another quarter of strong sales gains related to its Cloud computing based product lineup. Oracle’s three senior most executives described the quarter as very solid performance in terms of strategic Cloud based product uptake but Wall Street and associated investors had a mixed reaction. The company said its latest quarter was also weighed down by a strong dollar, which reduced revenue from various businesses by 1 to 3 percent.

The financial performance included:

  • Total revenues up 2 percent in U.S. dollars and up 3 percent in constant currency, both of which were reported by business media as missing analyst expectations.
  • Cloud plus On-Premise software revenues up 5 percent in U.S. dollars and up 6 percent in constant currency.
  • Cloud software-as-service (SaaS) and platform as-a-service (PaaS) were up 77 percent in U.S. dollars and up 79 percent in constant currency.
  • Operating income and operating margin at 31 percent
  • Non-GAPP operating income was $3.4 billion and non-GAPP operating margin was 31 percent.
  • Oracle closed the quarter with a $68 billion cash position.

Like many enterprise software providers, Oracle continues an aggressive pivot toward offering the market more Cloud based software applications, services and IT infrastructure. This includes a completely Cloud-based ERP offering. Last year, Oracle was the first technology provider to announce a complete public Cloud based SCM suite.

As Supply Chain Matters and others continually point out, a shift to Cloud based computing platforms can financially be beneficial for enterprises and supply chain teams but costlier for technology providers if the shunning of traditional licensing model exceeds the Cloud adoption rate. Providers earn more revenue on a longer term basis with Cloud licensing coupled with the opportunity to provide additional services.  However, the transition can be difficult to manage from the notions of financial expectations, margin performance and guidance. That is indeed what has been happening for major ERP providers such as Oracle and SAP.  While Oracle’s new software license sales fell by nearly 11 percent, we continue to believe that Oracle is deploying a far broader Cloud computing and applications deployment strategy providing customers with a number of flexible options in direction setting.  Once more, Oracle’s supply chain and product lifecycle management applications offerings remain very competitive.

At last night’s earnings briefing, executives pointed to the 7th consecutive quarter of revenue growth with ERP related revenues growing 70 percent, quarter over quarter. During the recently completed quarter, executives pointed to wins for 776 new SaaS along with 2032 new PaaS customers. Most of this activity was described as net new customers adopting the Cloud model while the bulk of Oracle’s existing applications and database customers are just beginning to make the transition.

Since the closing of Oracle’s latest fiscal quarter, the company has also announced the planned $9.3 billion acquisition of Cloud based ERP provider NetSuite as well as the intent to acquire supply chain execution and WMS systems provider LogFire.

On Sunday, the company will kick off the company’s 2016 Oracle OpenWorld Conference in San Francisco. There are a lot of expectations as well as implications to this year’s event including new and prospective customers, partners and systems integrators

Once again as in the number of previous years, Supply Chain Matters, in the presence of this industry analyst, has been invited to attend this year’s OpenWorld. We will be publishing continuous commentaries regarding event briefings, interactions and customer presentations beginning early next week.

Stay tuned and connected.

Bob Ferrari

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Disclosure: Oracle is a current client of the Ferrari consulting and Research Group.