Oracle sales miss magnifies fears about cloud missteps

"What the hell is cloud computing?" Oracle Corp Chief Executive Larry Ellison said during a diatribe against the whole concept at an investor Q&A in 2008.
 

Asked to describe his strategy for expanding into a then-small but rapidly expanding sphere, the software giant's head said he had no idea what people were talking about when they referred to cloud computing, describing it as "nonsensical" and those writing about it as "insane".

Five years after Ellison's rant went viral on YouTube, the billionaire is struggling to fit his ageing IT giant into a newly cloud-centric world — a hard scramble spotlighted by what analysts said was Oracle's first fourth-quarter miss on new software sales in a decade.

Oracle is now striving to catch up with its own line of cloud software, built up partly through acquisitions. Ellison has forged alliances with long-time bitter rivals Microsoft Corp and Salesforce.com Inc to drum up new business. On Thursday, Ellison said he will announce those partnerships next week, but provided few details.

Oracle stuck for years to building high-end multi-million dollar "engineered systems" that bundle hardware and software in one package. It started selling them with Hewlett-Packard Co in 2008 and then partnered with ailing computer maker Sun Microsystems, which it agreed to buy in 2009.

Oracle says the engineered systems strategy has been a big success, helping woo business from rivals IBM and SAP

"They spent the last four years focusing on engineered systems when the bigger industry trend was the cloud," JMP Securities analyst Pat Walravens said. "They now have a structural problem."

Oracle's shares plummeted 9.3 percent on Friday, their biggest one-day drop since releasing another weak set of results in March.

Investors took the disappointing results hard because it was the first time in more than a decade that Oracle missed software sales estimates in its traditionally strongest fiscal fourth-quarter, according to analysts. That's when sales representatives hustle to close deals to qualify for year-end bonuses.

And it was the third miss in the past seven quarters for Oracle, Walravens said.

Cloud companies such as Salesforce price their products below the levels at which Oracle can make a decent return, analysts say. Some rivals even sell their products at a loss.
Salesforce, for example, posted a net loss of $270 million last year. Less quantifiably, industry executives have said that emergent business software providers such as Workday started from scratch by focusing on ease of use and simpler interfaces, while old-school IT giants like Oracle have been hampered by legacy systems and software products that they were slow to re-tool.

"This is causing a real disruption in Oracle's business," said Tim Ghriskey, chief investment officer with Solaris Group, which manages about $1.5 billion. "It is going to pressure their business for a while." 

Sailing Along? 

Ellison, a renowned sailing enthusiast who is now devoting time and energy to his company's entry in this summer's Americas Cup, built Oracle from a scrappy operation building a database for the Central Intelligence Agency into one of Silicon Valley's foremost corporate icons. 

In past months, he has championed Oracle's resurgent foray into cloud software, at his annual Oracle OpenWorld conference for clients and developers, even while continuing to buy up assets in Hawaii, such as commuter airline Island Air. He bought almost all of the island of Lanai last year. 

Partners

Recent Tweet

Follow Us

Twitter icon
LinkedIn icon