While analysts were expecting 5 per cent growth in software-licence sales, Oracle recorded only a 1 per cent rise in the fourth quarter

Oracle seeks partners to keep cloud on course

A US software giant is hit by headwinds from the cloud, while a new British firm digs deep for energy.

Judging by its recent financial figures, software services giant Oracle looks as if it is being buffeted by the headwinds of the growing cloud computing market.

Investors were not impressed by the US group’s performance in the crucial fourth quarter (Q4), the period in which it takes in up to 40 per cent of annual revenues for sales of new software licences. While analysts were expecting 5 per cent growth in software-licence sales, Oracle recorded only a 1 per cent rise in the quarter. As a result, its share price suffered.

Oracle blamed weaknesses in the Asian and Brazilian software markets for the disappointing figures. But analysts pointed to a wider potential problem – competition in the cloud market from smaller rival SAP, as well as from brands such as NetSuite and Workday.

The growing popularity of cloud services among business and public-sector clients has certainly not gone unnoticed by Oracle. It has spent $4bn on cloud-related acquisitions in recent times. But in 2010 it bought Sun Microsystems, a computer storage specialist, for $5.6bn – and Sun has brought revenue declines instead of growth, say analysts.

Meanwhile SAP – much loved by the financial markets of late – has spent around $8bn on cloud acquisitions such as Ariba and SuccessFactors. These are costly buys, but SAP is predicting that revenues from cloud subscriptions will double to €750m this year. This is on a par with Oracle’s projection of $1bn (€779m) of cloud computing revenues for 2013 – but Oracle’s revenues will still represent only a small fraction of its overall annual sales of more than $37bn.

Oracle president Mark Hurd asserts that the company is doing well in cloud-based business applications – even name-checking two of its smaller rivals: “Oracle’s HCM Cloud, CRM Cloud and ERP Cloud grew 50 per cent as we added over 500 new SaaS [software as a service, or cloud] customers in Q4 alone,” he said. “Our annualised SaaS revenue run rate is over $1bn, making us a strong number two in cloud applications – we are larger than SAP and Workday combined. Furthermore, in Q4 our HCM cloud alone generated more SaaS revenue and added more new Fusion HCM customers than Workday added HCM and ERP customers combined in their most recent quarter.”

Oracle certainly still has big resources at its disposal. Overall sales for the fourth quarter stood at $10.95bn, and net income came in at $4.1bn. But investors will ask whether it is doing enough to attract new cloud computing customers and to deal with disappointing sales growth from new software licences.

Linking up with rivals could be one way forward. Oracle CEO Larry Ellison has pledged to pursue more partnerships for its cloud computing technology, and one such deal was struck only last month with major cloud provider Salesforce.com.

“When customers choose cloud applications they expect rapid low-cost implementations; they also expect application integrations to work right out of the box – even when the applications are from different vendors,” Ellison explained. “That’s why Marc [Benioff, salesforce CEO] and I believe it’s important that our two companies work together to make it happen.”

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