Oracle Looks to Expand Its Market Share in the Cloud Business



Oracle to surpass Salesforce’s revenue in SaaS

With annual revenue of $39 billion and a market capitalization of $180 billion, Oracle (ORCL) is the world’s second largest software vendor. It’s only behind Microsoft (MSFT). Oracle generated ~80% of its revenue from its software business, 10% from hardware after its acquisition of Sun Microsystems in 2010, and 10% from consulting and other services.

Oracle is looking to expand its presence in the cloud computing business as well as the SaaS (software-as-a-service) and PaaS (platform-as-a-service) segments. In fact, Oracle expects to overtake Salesforce.com (CRM) in the Saas and Paas segments in fiscal 2016.

The firm’s rising focus on cloud computing as well as engineered systems in the hardware segment has been supplemented with falling revenue in other segments.

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Oracle’s on-premise software business segment has upside potential

Although Oracle has stated that it’s concentrating on allocating resources and R&D (research and development) towards its cloud business, its global on-premise software segment has seen a fall in the last two years. Analysts expect the revenue in this segment to fall below 3% by 2021. In contrast, many of the firm’s customers aren’t switching from on-premise to cloud hosting. Renewal and attachment rates are high as well. They can shift between on-premise and cloud.

This suggests that the on-premise software segment has an upside potential that Oracle could explore. Oracle could reallocate resources to this segment after it successfully expands its penetration in Cloud.

Oracle isn’t reaping benefits after the acquisition of Sun Microsystems

In order to enter the hardware business, Oracle acquired Sun Microsystems in 2010. While Oracle bet on x86 servers, the global market moved to cheaper Unix-based servers and “White Box” servers made by Chinese ODMs (original device manufacturers). The demand for the external storage market fell on a global scale. The transition to cloud storage lowered Oracle’s market share in the hardware segment from 3% in 2012 to 2% in 2014.

To gain exposure to Oracle, you can invest in the SPDR S&P 500 ETF (SPY) and the Technology Select Sector SPDR (XLK) ETF. The stock accounts for 0.69% and 3.18% of the portfolios, respectively.


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