Category Archives: Quarterly Earnings

Oracle sets sights on IaaS market as it reports 49% cloud growth

Oracle CloudOracle has reported its 2016 Q4 results stating growth over the period declined 1% to $10.6 billion, though its cloud business grew 49% to $859 million, reports

2016 has seen Oracle spend almost $2 billion on cloud-specific organizations, as the tech giant continues efforts to transform the Oracle business focus to the burgeoning cloud market. While Oracle could be seen as one of the industry’s elder statesmen, efforts in the M&A market are seemingly paying off as PaaS and SaaS continues to demonstrate healthy growth to compensate for the dwindling legacy business units. The team have also outlined plans to make strides in the IaaS market segment.

Growth in the SaaS and PaaS business has been accelerating in recent years as CEO Safra Catz quoted 20% growth in 2014, 34% in 2015, and now 52% over the course of FY 2016. Q4 gross margin for SaaS and PaaS was 57%, up from 40% during the same period. The progress of the business would appear to be making healthy progress, and Catz does not seem to be content with the current growth levels. The team have ambitions to raise gross margin to 80% in the mid-term, as well as seeing cloud year-on-year revenue growth for Q1 FY 2017 of 75% to 80%.

“For most companies as their business grows, the growth rates go down,” said Catz. “In our case, as the business grows, the growth rates are continuing to increase. Now, as regard to our cloud revenue accounting, we have reviewed it carefully and are completely confident that it is a 100% accurate and if anything slightly conservative.”

Moving forward, CTO Larry Ellison highlighted the team plan on driving rapid expansion of the cloud business. The Oracle team are targeting growth rates which would double that of competitors as its ambition is now to be the first SaaS company to make $10 billion in annual revenue. The team are not only targeting the customer experience markets, but also the Enterprise Resource Management and Human Capital Management segments, where it believes there will be higher growth rates.

“We’re a major player in ERP and HCM,” said Ellison. “We’re almost the only player in supply chain and manufacturing. We’re the number one player in marketing. We’re very competitive. We’re number one – tied for number one in service.”

Secondly, the team will also be aiming to facilitate growth through expanding it IaaS data centre focus, which is currently an ‘also ran’ part of the cloud business. Ellison claims Oracle is in a strong position to grow in this area, having invested heavily second generation data centres, as well the potential for the combination of PaaS and IaaS for the company’s installed base of database customers, helping them move to the cloud.

“And we built, again, the second generation data centre, which we think is highly competitive with anything out there lower cost, better performance, better security, better reliability than any of our competitors, and there’s huge demand for it, and we’re now starting to bring customers into that,” said Ellison. “We think that’s another very important driver to Oracle for overall growth.”

The last few years have seen a considerable transformation in the Oracle business, as it has invested considerably in the development of new technology, as well as acquisitions, seemingly hedging its bets to buy its way into the cloud market. The numbers quoted by Catz and Ellison indicate there has been some traction and the market does seem to be reacting positively to the new Oracle proposition.

In terms of the IaaS market, success in this area will remain to be seen. Although Oracle has the potential to put considerable weight behind any move in this market, it is going to be playing catch up with some noteworthy players, who have cash themselves. Whether Oracle has the ability to catch the likes of AWS, Microsoft Azure and Google, as well as the smaller players in the market, remains to be see, though its success in the SaaS and PaaS markets does show some promise.

Leadership restructure has little impact as VMWare reports 5% growth

VMWare campus logoVMWare has reported healthy growth during its Q1 earnings call despite disruptions in the management team over the period.

Revenues for the first quarter were reported at $1.59 billion, an increase of 5% in comparison to the same period in 2015, though license revenues saw a drop of 1% to $572 million. The company now expects second-quarter revenue of $1.66 billion to $1.71 billion, compared with analysts’ average estimate of $1.66 billion.

“Q1 was a good start to 2016, both for results and against our strategic goal of building momentum for our newer growth businesses and in the cloud,” said Patrick Gelsinger, CEO at VMWare. “Our results were in line with our expectations for the period and support our outlook for the full year.”

Over the course of the period, there may have been concerns surrounding changes in the leadership team, and how a restructure would impact the performance of the business on the whole. Carl Eschenbach announced last month he would be leaving his post as VMWare President and COO to join venture capital firm Sequoia Capital as a Partner. CFO Jonathan Chadwick also left the business in January.

Eschenbach joined the firm in 2002 as VP of Sales, was appointed as co-President and COO in 2011 and eventually as the stand-alone President in 2012. During Eschenbach’s time at VMWare, revenues grew from $31 million in 2002, to more than $6 billion in 2015. The changes in leadership would not have appeared to have stifled the company’s performance, as its cloud business units performed healthily over the first quarter.

“We think on the executive side, it really is the combination of being able to attract new players than – I mentioned Rajiv (Rajiv Ramaswami, GM, Networking and Security) we brought in a leader for China, Bernard (Bernard Kwok, Greater China President); we’ve been able to continue to attract talent,” said Gelsinger. “We’ve also had commented on our very strong bench, and – like Maurizio (Maurizio Carli, VP Worldwide Sales), we had brought him over from Europe a year plus ago to prepare for this eventuality, and so we had been grooming and preparing for these transitions.”

The company also reported healthy growth for its cloud business unit, including NSX, VSAN, End-User Computing and vCloud Air Network. The company highlighted standalone vSphere license bookings were less than 35% of total bookings, a figure which was more than 50% two years ago. The team claim this reduction demonstrates the product offering has been successfully diversified.

“Turning to hybrid cloud. Total bookings for vCloud Air Network grew over 25% year-over-year,” said Zane Rowe, CFO at VMWare. “We see significant interest from cloud and service providers around the world wanting to utilize our hybrid cloud technologies. For example, as Pat mentioned earlier, IBM will be delivering a complete SDDC offering based on VMware’s technologies across their expanded footprint of cloud data centres worldwide. vCloud Air also performed well in Q1 with large enterprise customer adoption.”

In terms of long-term strategy, Gelsinger outlined a three-point plan to facilitate VMWare’s growth in the cloud market segment. Firstly, the business will consolidate its position in the private cloud space, a segment which it describes as the ‘foundation of our business’. Secondly, through the vCloud Air service and vCloud Air Network, the company aims to encourage its customers extend their private cloud into the public cloud. And finally, connecting, managing and securing end points across a range of public clouds, including Amazon Web Services and Microsoft Azure.