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Recent Update on the Software and Semiconductor Industry

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Part 6
Recent Update on the Software and Semiconductor Industry PART 6 OF 10

Putting the Oracle–BAC Deal into Perspective

BAC hands Oracle ERP contract

Oracle (ORCL) recently won a portion of Bank of America’s (BAC) technology business, being tapped as a co-supplier of financial planning and ERP (enterprise resource planning) software. Specifically, Oracle would supply technology to support the bank’s international general ledger and broker-dealer systems.

SAP SE (SAP), an Oracle rival, is Bank of America’s other ERP software provider. This contract from Bank of America involves Oracle supplying the on-premise software underpinned by cloud technology.

Putting the Oracle–BAC Deal into Perspective

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On-premise contract win

As can be seen from the chart above, selling on-premise software is Oracle’s largest business, but it’s a declining one. On-premise software sales of ~$7.5 billion in fiscal 4Q171 fell ~1.0% from fiscal 4Q16, but they contributed 69% of the company’s overall revenues. In contrast, its cloud sales rose 58% to ~$1.4 billion and contributed 13.0% of its revenues.

New on-premise contract wins could help Oracle stem the speedy decline of its largest revenue source as it transitions slowly to the cloud.

BAC provides stepping stone to cloud

As much as the Bank of America contract is a direct boost to Oracle’s legacy software business, it is also an indirect blessing to its cloud business. Bank of America intends to shift 80% of its technology workload to the cloud within the next few years. If Oracle impresses Bank of America in the on-premise ERP contract, it could benefit during the bank’s transition to the cloud.

Oracle lags Amazon (AMZN) and Microsoft (MSFT) in the cloud computing market, and Bank of America could help its position in several ways. Working with a financial institution of Bank of America’s standing offers a higher profile, and riding the bank’s cloud transition could significantly contribute to Oracle’s cloud sales growth.

  1. fiscal 4Q17 ended May 31, 2017
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