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Oracle’s On-Premises Software License Business Is Here to Stay

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Oracle’s cloud and on-premises technologies

In fiscal 1Q16, sales of Oracle’s (ORCL) total on-premises software license fell by 4% on a year-over-year basis to $5.85 billion. However, on a constant currency basis, the company registered a growth of 4%.

As mentioned in our earlier series related to Oracle’s earnings, as the company’s cloud subscription revenues continue to gain traction, they could cause Oracle’s long-standing on-premises software business to fall. However, there is another side to consider in this situation.

Oracle offers its database technology both in the cloud as well as on-premises. As Oracle’s technology is available on both platforms, it’s simpler to move workloads between the two.

As the current wave is encouraging SMAC (social, mobile, analytics, and cloud) revolution, there is a marked shift toward the “cloud.” Oracle’s aggressive strategy to shift towards the cloud, as well as its double-digit growth in the cloud business, shows the same.

According to Piper Jaffray’s 2015 CIO (chief information officer) Survey, and as the presentation above shows, Oracle is only behind Microsoft (MSFT) as a preferred vendor for enterprise software business. Oracle and VMware (VMW) were both cited as the preferred primary vendors after Microsoft.

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 Future growth for on-premises license software business

A majority of Oracle’s existing on-premises software licensees purchase additional and incremental cloud capabilities to operate in a hybrid cloud model. IBM (IBM) dominates the hybrid cloud space.

Larry Ellison, Founder and Executive Chairman of Oracle stated, “This coexistence of cloud and on-premises computing is going to be a decades-long process, if not forever.” This coexistence, even if it doesn’t provide high growth, will at least keep on-premises software license business alive for some time.

You can consider investing in the PowerShares QQQ Trust ETF (QQQ) to gain exposure to Oracle. QQQ invests about 3.08% of its holdings in Oracle.

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