Oracle’s Cloud Business Grows – WSJ

For years, Oracle’s main line of business was licensing software for companies’ on-premises databases and providing maintenance and other services, a revenue stream that is ebbing as businesses increasingly shut down costly servers and begin renting computing capacity and business software from third-party cloud vendors, on an as-needed basis.

“Cloud remains a relatively small percentage of Oracle’s overall revenue so far,” said

Adam Ronthal,

a research vice president at IT research and consulting firm

Gartner Inc.

“However, cloud is clearly the focus for delivery of new features and capabilities.”

Scott Bickley,

a principal research director at Info-Tech Research Group, said rather than compete directly with much larger cloud rivals, Oracle has sought to retain its legacy database customers by providing a cloud-based alternative to in-house systems. Most companies are wary of changing database providers, which involves a wholesale transfer of data and applications, he said.

“They’ve seen big percentage increases in cloud databases and other services, but it’s from a low base,” Mr. Bickley said. “When you look at the market share for cloud providers, they’re barely a blip on the radar.”

Oracle lags far behind cloud market front-runners like

Amazon.com Inc.’s

Amazon Web Services and

Microsoft Corp.’s

Azure.

“Oracle is heavily focused on shifting both its on-premises application customers and its Oracle database customers to the cloud,” said

Eric Newmark,

group vice president for International Data Corp.’s software-as-a-service, enterprise software and world-wide services division.

Mr. Newmark said part of Oracle’s strategy is to make cloud migration as easy as possible for its customers, by offering both technical and strategic support. With its own cloud infrastructure underlying its applications, he said, the company has also been able to boost its strength in other areas, such as its enterprise applications and vertical software tools.

Still, transforming into a cloud vendor isn’t cheap. Oracle’s cloud services and license support costs rose 23% in the third quarter, while total operating expenses were up 8% at $6.69 billion, the company said Thursday.

In December, it announced a roughly $28.3 billion deal to buy cloud-based electronic-medical-records company

Cerner Corp.

—Oracle’s largest deal ever—in a move aimed squarely at accelerating its cloud-computing business, analysts said. The deal is expected to close later this year.

“Our cloud business is on an absolute roll, you can see it in the numbers,” Oracle Chief Executive

Safra Catz

said Thursday in an earnings call with analysts. “Cloud is a fundamentally more profitable business than on-premise databases.”

However, Oracle said net income fell 54% to $2.32 billion in the third quarter, from $5.02 billion a year earlier. It blamed the loss on a tumbling stock price of gene-sequencing company

Oxford Nanopore Technologies

PLC, and an operating loss at chip maker Ampere Computing. Oracle is an investor in both companies.

Ms. Catz said the company expects fourth-quarter earnings of $11.56 billion to $11.79 billion.

Write to Angus Loten at [email protected]