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How Does Oracle Plan to Benefit in the Current IT Space?

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Security will drive IT spending in 2016

Previously in this series, we looked at Oracle’s (ORCL) new offering in the cloud: Oracle Cloud at Customer. It’s specially designed and built for customers who want to keep their data safe.

Oracle’s new service aims to provide companies’ CIOs (chief information officers) with enterprise software deployment choices. According to Piper Jaffray’s 2015 CIO Survey, Oracle is only behind Microsoft (MSFT) as a preferred vendor for the enterprise software business. Oracle and VMWare (VMW) were both cited as the preferred primary vendors after Microsoft.

According to a CIO Survey conducted by Nomura Holdings and released in mid-March 2016, security and cloud computing are expected to drive IT (information technology) spending in 2016, as you can see in the graph below.

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IT spending is expected to fall, security technologies gain attention

In the surveys, CIOs shared that they believe IT spending will increase only by 1.2% in 2016. That’s a decline from the October 2015 estimate of 3.1%. Jeffrey Kvaal, an analyst with Nomura, said, “Macro concern has hurt budget expectations.”

Gartner estimates show that global IT spending fell 5.8% toward the end of 2015. That’s the largest decline since the financial crisis of 2007–2008. In our 2016 cybersecurity series, we looked at factors that led to a fall in cybersecurity as well as the majority of technology stocks in 2016.

Tableau Software (DATA) and LinkedIn (LNKD) both issued weaker-than-expected guidance for 2016 due to a slowdown in customer spending. This news created a ripple effect and exacerbated the downfall in technology and cybersecurity stocks.

Daniel Ives, an analyst at FBR Capital Markets, believes that although IT spending will increase by only 3% in 2016, spending on next-generation security technologies will increase by 30% in 2016.

This explains Oracle’s focus on its new offering. Through this service, it aims to benefit from increased spending on security and cloud.

Investors who want to gain exposure to Oracle could consider investing in the Technology Select Sector SPDR ETF (XLK). While XLK invests ~3% of its holdings in Oracle, it also has a 31% exposure to application software.

In the next part, we’ll look at whether Oracle Cloud at Customer is meant for data center mobility.

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