- Software maker navigating transition to cloud computing
- Strength of U.S. dollar curbed international revenue
Oracle Corp.’s fiscal first-quarter revenue fell short of analysts’ projections, crimped by a slowdown in software license sales amid a shift to Web-delivered cloud products.
Revenue in the period that ended Aug. 31 fell 1.7 percent to $8.45 billion, and profit before certain costs was 53 cents a share, the Redwood City, California-based company said Wednesday in a statement. Analysts on average had forecast sales of $8.53 billion and profit of 52 cents, according to data compiled by Bloomberg.
Oracle is trying to navigate the transition to computing as a service over the Internet. While this move to the cloud has provided the company with opportunities to break into new markets, the shift has hurt its traditional business of selling licenses for software installed on corporate systems. Growth has also been hurt by the strength of the dollar, which has devalued revenue outside the U.S. International sales make up more than half of Oracle’s business. Had currency rates been constant, total revenue would have risen 7 percent in the quarter, Oracle said.
“If licenses are going down and people are feeling that it’s not being made up for by billings on the cloud side, they’ll view that as maybe Oracle is growing in the cloud but other cloud providers are growing at Oracle’s license expense,” said Kevin Buttigieg, an analyst at MKM Partners, who has a neutral rating on the stock.
Oracle shares dropped 4 percent to $36.74 at the close Thursday in New York, marking their biggest slide since June.
Net income in the first quarter declined to $1.75 billion, or 40 cents a share, from $2.18 billion, or 48 cents, a year earlier.
Co-Chief Executive Officer Safra Catz said that while the company feels good about its transition to the cloud, it is being prudent with its forecasts given world economic conditions.
In the current quarter, profit before certain items and assuming constant currency rates will be 63 to 66 cents a share, she said. Revenue in the period that ends in November will range from a decline of 2 percent to a gain of 1 percent compared with the same quarter a year earlier. That indicates sales of about $9.4 billion to $9.7 billion. Analysts had predicted profit of 65 cents a share on revenue of $9.54 billion, according to data compiled by Bloomberg.
Profit margin on the company’s cloud-based revenue is expected to widen in the next two years to 80 percent from the current 40 percent, Catz said on a conference call. The improvement will come from increased scale, she said.
In recent years Oracle has lagged behind competitors such as Salesforce.com Inc. and others in retooling for the cloud, and is racing to beat established rivals such as SAP SE and International Business Machines Corp. Oracle has been redesigning its products so that they can be sold and delivered over the Internet to keep up with the transformation in the broader enterprise technology industry, where companies are increasing spending on cloud services from providers such as Amazon.com Inc., Workday Inc. and Microsoft Corp.
The shift has also led to cuts in spending on traditional hardware and software like Oracle’s databases and management programs, with newer companies offering less-expensive alternatives, such as Amazon Web Services’ Aurora software.
Oracle reported $1.15 billion of new software licenses, a decline of 16 percent. Analysts watch that number for insight into how well the company can sell new products and services to first-time customers and existing clients. Revenue earned from software-license updates and product support was little changed from a year ago at $4.7 billion. Sales in the company’s hardware division fell 3 percent.
The strongest growth came in the company’s small yet strategically crucial cloud division, which increased sales by 29 percent to $611 million. In June, Catz said that a traditional $1 million software licensing deal is worth about $3 million over 10 years, compared with $10 million for an equivalent cloud deal, because the million-dollar cloud deal refreshes every year.