Oracle has hit a soft patch of growth, which was reflected in its recent results. In its most recent earnings, the company reported revenues of $9 billion, down 1% year-over-year.
The slower growth can be attributed to cuts in IT spending by large enterprises. A growing shift towards cloud computing has also been hurting the on-premise software business. New software license revenue in the last quarter was $2.3 billion, a 2% decline from the prior year. While Oracle has increased its presence in the cloud software space, its performance remained dull compared with other market leaders like Salesforce. Cloud revenues were down 1% to $238 million for the quarter while Salesforce saw 28% growth (Salesforce Shows Strong Growth But Soaring Costs Drag On Its Value).
However, Oracle has been on the lookout for growth opportunities for a while and has snapped up smaller companies such as Selectminds, Xsigo Systems, Skire, Collective Intellect and Vitrue, among others. This is a clear push to make its presence felt in the network virtualization and social media markets. We expect these acquisitions to soon begin to pay off and serve as growth engines for Oracle going forward. Its Big Data analytics business is also doing well and holding its own against
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Xsigno Acquisition To Begin To Pay Off
With increasing mobile computing and the bring your own device movement, data traffic has increased substantially. This has been putting significant pressure on traditional data centers due to the inefficient capacity use of switches (which connect storage hardware with the network through cables). Currently, most of the switches in use are from networking giants including Cisco, Hewlett Packard and Juniper and use only 5% of their potential capacity. Further, many of these companies offer converged infrastructure and their switches are mostly not cross-compatible with products from other vendors. This forces enterprises to stick to their original vendors and buy expensive switches, which ultimately translates into higher costs.
However, with cost cutting taking priority for many enterprises, software defined networking is gaining traction. To gain from this trend, Oracle acquired Xsigo last year. While Xsigo is not a strict SDN platform, it is similar in the sense that it reduces the amount of switches, physical hardware and cabling required to run a network of virtual machines. Xsigo’s data fabric center works on I/O virtualization and makes much more efficient use of a switch's data carrying capacity. Further, it also enables companies to use relatively cheap commodity switches while saving power costs as well. Xsigo also uses Application Specific Integrated Circuits (ASICs) in its devices, which will act as a barrier for companies trying to replicate the technology.
Oracle last month launched its new data center fabric, integrating the Xsigo technology with its newest SPARC servers. Given the aforementioned trends, Oracle’s better brand positioning and global reach, we expect the fabric to gain strong traction in the market.
Oracle’s Social Push
While technology spending is dropping for IT systems, technology sales are increasingly being driven by marketing teams through campaigns on social media platforms. Marketing spend on social media is becoming a significant part of companies’ marketing budgets. Oracle has been on an acquisition spree in the social media marketing space and bought social media start-up Involver along with Vitrue and Collective Intellect. This was followed by the acquisition of SelectMinds, a provider of cloud-based, social talent applications which also manages corporate alumni networks.
Involver mainly caters to the creation of campaigns on
Revenues from social media services is currently very low for Oracle; however, as IT spending grows and marketing budgets begin to include social media software expenditures, we expect high growth from this division in the future.
Big Data Opportunity
Oracle is trying to own more of the the Big Data market with its Exalytics in-memory appliance, which competes directly with SAP’s popular HANA offering. It also launched Advanced Analytics that enables users to run scripts for business intelligence applications in its Big Data appliance. Enterprise hardware offerings like the Exalytics appliance will not only help the company ride the Big Data trend but also enable it to improve its hardware margins by phasing out older legacy hardware, launching new high-margin hardware and bundling it with its software products. Though its hardware revenue has taken a hit recently, we expect it to improve in the coming years.
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