Oracle's second-quarter earnings announcement beat expectations in some respects, but also raised a number of interesting and in some cases, unanswered questions. Here's a look.
Is Exadata carrying the day for Oracle's "engineered systems?": Oracle has struggled to grow top-line revenue for the hardware business it gained through the Sun acquisition, while voicing a constant mantra that it's focused on higher-margin "engineered systems" like the Exadata database machine. And indeed, hardware systems product revenues for Q2 fell 23 percent to $734 million.
During the conference call, co-president Mark Hurd said Oracle had sold more than 700 engineered systems in the quarter, but he didn't provide a breakdown, leaving open the question of whether Exadata, the first such machine Oracle introduced, is carrying the bulk of sales. Hurd also cited wins for the Exalogic application server box and Exalytics analytic appliance, but didn't give numbers. In addition, he didn't break out how many of those 700 sales were for the lower-cost Oracle Database Appliance, which is aimed at smaller companies.
What's selling in Fusion Applications?: Oracle spent years and billions of dollars to develop its next-generation Fusion Applications, which can be deployed both on-premises and in Oracle's cloud.
Oracle has touted that it has 100 Fusion products for sale now, spread over a number of functional pillars, such as financials, CRM (customer relationship management) and HCM (human capital management).
On the conference call, Oracle CEO Larry Ellison said the company is seeing rapid growth in Fusion across-the-board in CRM and in HCM."
It's also beating rival cloud HCM vendor Workday "in the majority of deals," Ellison said. Oracle is also having success with Fusion CRM against Salesforce.com, according to Hurd.
But co-president and CFO Safra Catz said "most of the [Fusion] pillars are doing very well." That means some, perhaps ERP (enterprise resource planning) among them, aren't catching fire just yet. Oracle is likely not worried about that, however, given the size of its E-Business Suite, JD Edwards and PeopleSoft ERP installed base.
How will Oracle manage the shift to cloud revenues?: Oracle has begun reporting new software license revenues and cloud subscription revenues as a combined total. In Q2, the take was up 17 percent to about $2.4 billion. During the conference call, co-president and CFO Safra Catz revealed that cloud sales accounted for $230 million of that.
The subscription model is common among cloud vendors but also a departure from Oracle's comfort zone, which has long consisted of large up-front perpetual license sales, following by predictable annual maintenance payments.
With cloud subscriptions, support is baked into the per-user, per-month pricing. But Oracle's traditional maintenance business is its lifeblood, carrying extremely high profit margins and taking up nearly half of all revenue in Q2.
While Oracle will clearly seek to maintain some type of parity between cloud subscription pricing and on-premises licensing in order to preserve its margins, making the shift could still be tricky.
When asked by an analyst whether Oracle's on-premises software maintenance revenues will take a hit as cloud sales rise, Catz stood firm, saying the cloud is "just not going to have a material impact."
"Theoretically, [regular maintenance revenues] might not grow as quickly," she added. "But at this point, we've got a long way to go. So we expect that number to grow and our SaaS number to grow simultaneously at much higher percentages because it's a smaller base." Oracle is also enjoying extremely high renewal rates for maintenance, Catz said.
When will Oracle database 12c arrive and what will be the impact?: Ellison had previously said that Oracle's next-generation database, version 12c, would be arriving in the market either late this year or early next.
But at the OpenWorld conference a few months ago, Oracle announced that the release date would be sometime in "calendar year 2013," a wording that gives Oracle some additional breathing room if required.
On Tuesday's conference call, Ellison discussed 12c but didn't firm up a launch date, instead focusing on extolling the release's new features, calling it the first database "designed for the cloud."
That's because Oracle has incorporated the concept of multitenancy, an architectural approach long used in SaaS (software as a service), where many customers share a single application instance with their data kept separate. This gives SaaS vendors the ability to apply upgrades and patches to all of them at once, among other benefits.
"We've moved the multitenancy feature out of the application and down into the database layer, which gives people much better capability, much better security," Ellison said. "So we think it will greatly enhance our own cloud offering. It will help all of the cloud companies that depend on the Oracle database. And it will be very, very attractive to our enterprise customers."
However, while Oracle itself may move quickly to 12c for its cloud operations, history has shown that many Oracle database customers tend to wait until the second release within a given cycle, preferring to feel comfortable that all the kinks have been worked out. Typically, Oracle has issued those second database releases a couple of years after the initial launch.
What do Oracle's Q2 results mean for the global economy and other software vendors?: Oracle reported double-digit growth in all regions, with sales strong even in Europe, which has been racked by economic crisis for some time.
Hurd was asked about the seeming anomaly, but his answer didn't seem to bear good news for the software sector in general.
About a year ago, Oracle started hiring aggressively in Europe, and as a result, has simply generated more leads, according to Hurd. Deals may still be difficult to close, but Oracle is simply engaged in more of them, so the numbers went up, he said.
That said, the market will get another telling indicator of IT spending health in Europe next month, when Oracle rival SAP is expected to report its fourth-quarter and year-end results.
Will Oracle make a big acquisition?: Oracle is well known for its long history of acquisitions, both in terms of big-bang deals like the Sun purchase as well as an extensive string of smaller, niche buys.
If Oracle wants to make a Sun-level splash sometime soon, it certainly has the means, ending the second quarter with about $34 billion in cash and marketable securities.
Chris Kanaracus covers enterprise software and general technology breaking news for The IDG News Service. Chris' email address is Chris_Kanaracus@idg.com
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