Oracle exits 2019 with flat revenue growth and eating its own cloud dog food

Stuart Lauchlan Profile picture for user slauchlan December 13, 2019
Oracle's Q2 numbers disappointed Wall Street at the end of a year that's had its patches of turbulence.

Larry Ellison smiling

It’s been a busy week for Oracle one way or another. The company named former Infosys and SAP veteran Vishal Sikka to its board of directors; confirmed it was moving its annual OpenWorld conference from a 'too expensive' San Francisco to Las Vegas; and finally turned in Q2 numbers that disappointed Wall Street.

Overall revenues were up half a percent year-on-year to $9.61 billion. Cloud Services and License Support contributed $6.81 billion, up 3% from a year ago, while Cloud License and On-Premise License turned in $1.13 billion in revenue, down 7% year-on-year. Hardware revenue was down 2%  to $846.5 million. Profit rose to $2.31 billion

The firm’s ERP offerings were pointed to as a highlight of the quarter by Chairman and CTO Larry Ellison, with Fusion ERP revenues up 37% and NetSuite ERP up 29%. That also led to some ‘old style’ Ellison rival-baiting:

We have a huge lead in Cloud ERP, with over 7,000 Fusion ERP customers and 20,000 NetSuite ERP customers. Our closest Cloud ERP competitors, Workday, and they claim to have a few 100 ERP customers.

Workday’s lack of success in Cloud ERP is creating opportunities for Oracle in Cloud HCM. More and more, we’re seeing HCM as being purchased as a part of an ERP cloud application suite. As a result, today, we have more HCM customers than Workday. And we’re beginning to see that same integrated suite strategy beginning to drive our sales of CX customer experience applications in sales and service and in marketing.

SAP never rewrote their ERP applications for the cloud. As a result, SAP’s installed base is very vulnerable. We’ve already replaced and successfully migrated many midsized SAP customers from SAP to Fusion ERP…By offering a safe and compelling alternatives to SAP’s old technology, we can increase our applications growth rate far beyond that 30%. We’re very, very comfortable that we will be the overwhelming winner in this generation Cloud ERP business.

Importantly, a few months from now, in Q1 calendar year 2020, one of SAP’s biggest customers will go live on Fusion ERP. Many of SAP’s largest customers are already working with us to develop plans to migrate the Fusion ERP. SAP’s customer base is up for grabs. They didn’t rewrite their applications for the cloud. That has created an enormous opportunity for Oracle.

On former analyst calls, it would be left to the late Mark Hurd to pick out customer highlights, a role taken on by Ellison now. He cited ERP wins including Edwards Life-sciences, Mutual Life Assurance, Southern Star Central Gas Pipeline, Unilever Baker Hughes and Carlson Wagonlit Travel services, and HCM signings including Airport Terminal Services, Banque Saudi Fransi, CenterPoint Energy, Texas Children’s Hospital, Birmingham City Council and Kuwait Petroleum Corporation.

Ellison also pointed to some customer wins for its Autonomous Database, including  King Faisal Specialist Hospital & Research Centre, MGM Entertainment, Provident Healthcare Services, Schenker Logistics, Ford Motor and Target: 

We’ve decided to take, if you will, an AWS approach to selling Autonomous Database in the cloud. So we almost prefer selling our $30,000 deal to a $100,000 deal, because in a $30,000 deal, we can close in four weeks. We think the way to sell Autonomous Database is to get it installed on a project in one of our customers, get it going, help them become successful. And then once they actually get their hands on Autonomous Database and they have working apps, they have working projects, working data warehouses, working transaction processing systems, you start some new land-and-expand. So we’re selling thousands and thousands of small deals. And some of those deals are already coming back as larger deals…we’re just beginning to see the first people coming back and going from $30,000 a month to $600,000 a month.

Dog food on the menu

While Ellison name-checked users, it was Oracle itself that was offered up as the most in-depth use case in another bit of ‘eating your own dog food’ affirmation by CEO Safra Catz that she pitched as demonstrating that the firm was sharing the experiences of its customers:

With Fusion ERP Cloud, we are now able to close our books and report earnings in 12 days or less. Many companies don’t report their results for weeks. And not only can we get our results out faster, but we’ve saved money, too.

By using the AI and processes in Fusion ERP Cloud, we have been able to eliminate more than 30% of our manual accounting activities. And enabled by Fusion HCM Cloud, we have seen employee satisfaction levels soar with all-time high rates for things like hiring and onboarding new employees.

We’ve also made it easier for our managers and employees, as Fusion HCM reduces the time needed to complete the talent review process by more than 70%. And separately, we’re saving more than 20,000 hours of manager time each year with our accelerated job offer process.

In sales, we’re using our front-office cloud platform, augmented with machine learning and our own Data Cloud to help our salespeople sell more and sell more quickly. With Marketing Cloud, campaign planning now takes days rather than weeks. And with built-in machine learning, we’ve seen a doubling in lead conversion.

We automatically capture millions of activities in Sales Cloud each year. And with CPQ Cloud, ordering is much faster and easier, with over 70% of our transactions fully automated. We needed that to handle the increased volumes of transactions as a result of our customers move to the cloud.

In addition, we’ve adopted the Gen2 Infrastructure, including Autonomous Database for our custom apps. Our internal IT costs to run these systems are down by millions, while at the same time, we are adopting more than 100 new features each quarter.

Catz was also confirmed by Ellison as retaining the status of sole CEO for the time being in the wake of the death of Hurd earlier this year. A successor to her - and to Ellison - will be ‘home grown’ over time, he said:

For a second CEO, we don’t have plans. We have no plans for having a second CEO. It was an unusual situation, where Mark and Safra were an absolutely fantastic team. But we have complete confidence in our existing management team. We’re doing a lot of recruiting and you’ll see a lot of announcements at the next layer down that we’re hiring a bunch of people at the next layer down who are potential CEOs, when both Safra and I retire, which is not anytime soon. And so we’re going to strengthen the management team, but one of the strategies for strengthening that team is not to hire a second CEO.

My take

An interesting end to 2019 for Oracle, a year that might be regarded as something of a bumpy ride. Overshadowed inevitably by the untimely passing of Mark Hurd, the transition journey to the cloud has hit a fair few patches of turbulence on Wall Street, even if the direction of travel remains solid and positive. On the upside, there’s some meat being put on the bones of Autonomous Database in terms of early user references coming through.

There was a lot on the post results analyst call last night that seemed famlliar to long-term Oracle watchers, not least that return to some ‘classic Ellison’ rival-baiting in the direction of Workday and particularly SAP. With Catz now confirmed as sole CEO, presumably Ellison will continue to have a higher profile on such calls. Whether there’s a shift back to such competitive rhetoric will become clear over time. Meantime, the ‘grow your own successor’ plan is an interesting, if not entirely unexpected, development, again opening up a question that used to be debated a lot - what’s the succession plan for the firm?  With Ellison noting that neither he nor Catz are planning to go anywhere anytime soon, there’s time to answer that question, but it will lead to a lot of speculation when surveying the next tier of executives.

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