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Oracle: Forecast 100% Cloud-y

 October 05, 2012 04:01 PM

(By Mani) Oracle Corp. ( NASDAQ: ORCL) unveiled its Cloud strategy at OracleWorld 2012 and the accompanying analyst day in San Francisco. The event provided a good overview of the company's best-of-breed strategy and most importantly did a good job of highlighting its solutions for the Cloud and offerings in big data and social media.

The company noted there was nothing to stop it from delivering 20 percent earnings growth again, after about 20 percent compounded annual growth rate in the last 7 years.

"Overall, we remain constructive on the opportunity and look for the stock to outperform large-cap peers over the next year," RBC Capital Markets analyst Robert Breza wrote in a note to clients.

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Oracle laid out its Cloud vision, which is to provide a complete suite of enterprise-grade applications accompanied by a comprehensive platform for developers on a consistent enterprise service layer for development flexibility.

Customers will be given a deployment choice as they can run in the Oracle public cloud, as a private cloud behind the firewall, or can buy traditional licenses and run on their own hardware.

It also highlighted the additions to the sales force, its more specialized sales model, and the building pipeline. More specifically, the company added 2,500 sales hires in fiscal 2011, and 3,300 sales hires in fiscal 2012, the bulk of which should be maturing over the next several quarters and be at full quota.

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"Backing up its confidence about a growth-driven outlook (even without large M&A), ORCL has concentrated its investments in sales and pre-sales and R&D – which represent a combined 94 percent of headcount adds in FY '11 and FY '12, plus R&D spending  of $4.5 billion in FY '12 and an estimated $5 billion in FY '13," UBS analyst Brent Thill said in a client note.

Research and development headcount growth was similarly highlighted as headcount increased by 1,600 in fiscal 2011 and 2,600 in fiscal 2012, while $4.5 billion was spent on research and development in this year as the company remains commitment to investing for innovation.

The biggest attraction of the event was the launch of Oracle Exadata X3. Exadata X3 is an aggressive move to give customers more for their money – four times more memory (2-4 TB DRAM + 22 TB Flash) at the same price as X2.

"The big announcement from our perspective (among the close to forty press releases during OpenWorld) was the introduction of the Oracle Exadata X3 Database In-Memory Machine," Breza said.

The headline change is that the X3 is an in-memory machine, automatically moving all active memory from disk to memory. Previous Exadata versions were disk-based with memory to accelerate performance while the X3 will run in-memory with disk used to expand capacity.

X3 is built on the same architecture as X2 and will be offered at the same price but with the previously mentioned memory advantages, more processing cores, and better overall performance.

Oracle is betting big on its cloud-based products and a "holistic" approach to the cloud could bring the business software maker to the top of the market.

The seven new Oracle Cloud preview services augment Oracle's comprehensive portfolio of platform services, application services, and social services, all available on a subscription basis. The pricing model is simple, predictable and based on a monthly subscription model. Customers can choose to sign up for month-to-month subscriptions or longer term contracts.

Oracle Cloud adoption continues to grow aggressively with more than 10,000 customers and more than 25 million users worldwide.

In addition, Oracle's service offers a platform where clients could build websites and handle transactions, and subscribe to computer servers, storage and networking.

As part of its cloud strategy, Oracle has acquired a number of smaller technology companies. In 2012, Oracle has acquired eight firms in the cloud space including SelectMinds, Xsigo Systems, Xsigo Systems and Taleo.

SelectMinds is a provider of cloud-based social talent sourcing and recruiting applications; Xsigo Systems is a virtualization technology company that simplifies cloud infrastructure and operations. Vitrue is a Social marketing platform provider, while Taleo is a talent management software company.

All these companies specialize in different fields and gives Oracle a rich suite of tools to compete against rivals such as Salesforce.com (NYSE: CRM).

For Oracle, it is quite evident that the company does not want to lag behind with its direct competitors, as well as others in the industry, and be a whipping boy at the end of it. Various research firms are indicating solid growth for cloud computing.

The sector is projected to grow to $240 billion by 2020 by Forester Research. Similarly, International Data Corp. (IDC) estimated that IT cloud services revenues witnessed more than $21.5 billion in 2010 and is further estimated to touch $72.9 billion by 2015 indicating 27.6 percent compounded annual growth rate. This is significantly higher than 6.7 percent CAGR projected for global IT market during the same period, a point which neither Oracle can afford to ignore.

On the positive note, Redwood City, California-based Oracle is likely to gain future share of its customers' IT budgets due to new product innovations around engineered systems and the Fusion architecture. In the past, Oracle has expanded its technology footprint with its customers in tough economic environments, and its engineered systems strategy should gain account control in the future too.

"We believe easy comps and new compelling products set up the potential for accelerating revenue growth this year," Thill noted.



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