The following Supply Chain Matters commentary focuses on Oracle’s latest upbeat report of fiscal Q2 financial results, with hints of an evolving strategy that has the potential to accelerate the provider’s growth path.

Event Overview

Enterprise Cloud infrastructure and software applications technology provider Oracle reported an upbeat financial performance as well as outlook for the company’s fiscal Q2 period that ended in November. The company exceeded Wall Street expectations for both the top and bottom lines.

Among the financial highlights were:

  • Total quarterly revenues of $10.4 billion, up 6 percent year-over year.
  • Cloud services and license support revenues of $7.6 billion, up 6 percent.
  • Total Cloud revenues (IaaS plus SaaS) of $2.7 billion up 22 percent.
  • Oracle Cloud Infrastructure (OCI) consumption revenues reported as $4.4 billion, up 5 percent, and excluding legacy hosting services.
  • Short-term deferred revenues of $7.9 billion with operating cash flow of $10.3 billion for the trailing twelve months.
  • Profitability resulting in a net loss of $1.2 billion, primarily attributed to litigation related charges stemming from the recruitment of former CEO Mark Hurd in 2010.

Oracle CEO Safra Catz summarized the quarter’s performance to analysts and investors that Oracle saw excellent performance in technology, vertical businesses as well as North America and Latin American regions. She further pointed out that since the company has now deployed its own Cloud technology and software applications, financial reporting occurred within 8 days of the quarter’s closing.

News of this financial performance caused the company’s stock to rise nearly 16 percent in next day trading, resulting in the stock’s best day since March 2020 and according to business broadcasting network CNBC, the stock’s second-biggest gain in the past 20 years.

 

Cloud Applications Software Segment Strategy

Of late, Oracle executives have shared added details relative to growth in the company’s Cloud applications and software segments. Reported was that strategic back-office applications are now experiencing an annualized revenue growth rate of 30 percent, at a level of $4.9 billion. Included in this growth was Oracle Fusion ERP growing at 35 percent, Oracle Fusion HCM growing at 25 percent, and NetSuite ERP growing at 28 percent.

While Oracle’s Cloud SCM was not specifically called out, past data reflects that adoption momentum for SCM parallels or follows Cloud ERP momentum as customers accelerate their business process transformations.

In our prior published commentaries related to Oracle’s financial and operational performance, we have pointed out that true to his style, Chairman and CTO Larry Ellison has been rather vocal in pointing out in deep detail, why the company’s technology and applications business strategies are winning against major competitors in the market such as SAP SE. This latest report briefing was no exception, but by our observation, Ellison’s review of the market dynamics may be moving some prior skeptics.

 

Cloud ERP Adoption Scenario

Ellison disclosed that Oracle’s legacy on-premise customers stand at 7,500 customers, primarily made up of E-Business Suite, PeopleSoft and JD Edwards backbones. Of that number, 1,000 reportedly have begun their conversion journeys to Fusion Cloud ERP and he expects all of the remaining 6,500 to eventually convert over time. This has been consistent with the company’s adoption strategies, allowing on premise customer to convert when they feel they are ready.

He then extrapolated to again reinforce his belief that the vast majority of Oracle’s existing growth is coming at the expense of competitors.

Ellison focused on the actual number of existing Fusion ERP customers which are now 8,500. Since 1,000 are conversions from Oracle’s existing on-premise customers, his argument is that 7,500 customers are net new customers. Added to this is the 28,000 NetSuite ERP customers amounting to a total of 35,500 Cloud based ERP customers running on Oracle technology.

He then extrapolated to a five-year growth rate of 30 percent, fueled by net new and existing Oracle on-premise ERP conversions, to estimate that Oracle’s Cloud ERP revenues can readily grow to $20 billion at 85 percent margins in that five-year period. However, Ellison expressed his emphatic belief that the number will be far larger, because of added innovations that will evolve during this same period.

 

Industry Vertical Adoption and Synergy

The largest and most strategic ERP vertical industry segments that Oracle is focusing on is that of Banking, Healthcare and Logistics. The latter should be of special interest to readership.

Ellison cited FedEx, DHL, DP World and UPS, among others as key customers. He observed that a B2B procurement transaction can take on a different dimension when one Oracle Cloud ERP system is electronically communicating to another in conducting business. He shared efforts underway in collaboration with banking and logistics industry partners to originate purchase financing, shipments, invoicing, delivery tracking, and so forth within two electronically communicating Oracle Cloud ERP procurement systems.

Specifically stated was the following:

“Oracle Cloud ERP will soon bring an entirely new level of automation to B2B commerce, one that very much resembles the ease of doing business and efficiency of B2C e-commerce. This new ERP automation system, all these new capabilities will dramatically simplify our customers’ procurement and supply chain processes. And as such, it represents a huge new opportunity for Oracle to grow its cloud ERP ecosystems.”

From our lens, the above outlined logistics and supply chain business process automation strategy is noteworthy because it represents a different approach, one focused on what we have stated as network of networks based. It has the potential to umbrella commerce transactions, financial flows, and informational movements related to physical products or objects flowing electronically among multiple Cloud based ERP or other supply chain focused systems, regardless of company size, large or small. It provides the opportunity to electronically synchronize information flows, movements and decision-making without the constraints of a single Cloud platform.

 

Final Thoughts

This will be an interesting area to monitor in that it can fuel the renaissance of Cloud ERP and supply chain applications systems combined. It could further provide an added threat to existing technology start-ups or hyper-scaler integrators whose business models are anchored in enhancing end-to-end supply chain visibility and resiliency.

Oracle senior executive have been relentless in articulating over and over again on the advantages of a Cloud technology provider that provides a singular umbrella of Cloud systems infrastructure, data management and road Cloud based business support applications.

Perhaps repetition supported by continuing evidence is now making its mark.

 

Bob Ferrari

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