Economic Calendar

Friday, October 7, 2011

Oracle Embraces Cloud to Fuel Growth

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By Aaron Ricadela - Oct 7, 2011 6:46 AM GMT+0700

Oracle Corp. (ORCL), the world’s second- largest software maker, aims to eschew big acquisitions and promote growth from within, relying on hardware sales and a new cloud-computing service to broaden use of its products.

After gobbling up more than 70 companies in a $40 billion acquisition spree, any additional large deals would have to clear an “enormous hurdle,” Oracle co-President Safra Catz said today at a meeting with investors and analysts in San Francisco.

The company instead will focus on what it already has, including the Sun Microsystems server business it purchased last year for $7.4 billion. Oracle is packaging its database and business applications into customized computers to entice customers. The company also is touting its new Fusion business applications and a service called the Oracle Public Cloud, which delivers software online via cloud computing.

“People realize M&A is a big part of the Oracle growth story -- on the other hand, no one wants to see a big, dilutive acquisition,” said Bill Whyman, an analyst who covers the technology industry at ISI Group Inc.

Large deals would create distractions for management, Oracle co-President Mark Hurd said at today’s event. The company will focus on “organic” growth from existing products during the current fiscal year, he said.


‘Strong Year’

“We think we’re going to have a really strong year,” said Hurd, who joined Oracle in 2010 after serving as Hewlett-Packard Co. (HPQ)’s chief executive officer.

Oracle, based in Redwood City, California, embarked on its run of acquisitions in 2005 when it bought the human-resources software maker PeopleSoft Inc. The company has relied on deals to boost sales to $35.6 billion in the fiscal year ended in May. This year, revenue is projected to rise 8 percent to $38.6 billion, according to analysts’ estimates compiled by Bloomberg.

The company combined the features it acquired from PeopleSoft, J.D. Edwards and Siebel Systems into the Fusion apps, which the company made available yesterday at its OpenWorld conference after six years in development. Fusion software handles business tasks such as sales, human resources, finance and inventory management.

Customers will be able to run the more than 100 Fusion applications on their own computers or in Oracle’s data centers, through the Oracle Public Cloud. The cloud service will be available within weeks, the company said.

Stock Gain

Oracle, which ranks second to Microsoft Corp. in worldwide software sales, rose 56 cents, or 1.9 percent, to $30.07 today on the Nasdaq Stock Market. The shares have climbed 9 percent over the past 12 months.

Oracle also unveiled new hardware that it developed with Sun technology. Earlier this week, the company introduced two computer systems, one with faster data-analysis capabilities and another for organizing information from the Web, as it aims to win market share from Hewlett-Packard, International Business Machines Corp. (IBM) and SAP AG. (SAP)

Shifting into the cloud helps Oracle keep pace with those rivals, which all are delivering more software via the Internet. It also steps up Oracle’s competition with cloud pioneers, such as Salesforce.com Inc. (CRM)

“This is a really clear sign that they’re in the cloud now -- there’s no confusion,” said Brent Thill, an analyst at UBS AG in San Francisco. He recommends buying Oracle’s shares. While the company already had the technical capability to run applications and databases in its data centers, it hasn’t delivered the message to customers until now, Thill said.

‘Marketing Gap’

“They needed to close more of a marketing gap than a functionality gap,” Thill said.

Fusion apps will mainly compete with software from Salesforce and SAP. The shift to a cloud-based subscription model shouldn’t hurt profits or rankle buyers, Oracle said.

The cloud service is built on industry-standard technology that customers understand, CEO Larry Ellison told attendees yesterday at the OpenWorld conference. Ellison didn’t speak at today’s event, following the death of Apple Inc. CEO Steve Jobs, a personal friend.

“Just because you go to the cloud doesn’t mean you forget everything you learned about information technology over the last 20 years,” Ellison said yesterday.

To contact the reporters on this story: Aaron Ricadela in San Francisco at aricadela@bloomberg.net

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net


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