Impact of R&D on business

Leading database management player Oracle (ORCL) has built a strong IP (intellectual property) portfolio driven by the company’s huge expenses on R&D (research & development). The company’s dominance in both Fusion ERP (Enterprise Resource Planning) and HCM (Human Capital Management) in the cloud is helping the company boost its market presence.

Is Oracle Gaining from Steady R&D Expenditures?

Oracle is investing in a fully autonomous self-driving database powered with machine learning features, which could add significant value to its clients by reducing costs and human error. The company plans to launch more such autonomous platforms for transactional workload, mobility, and autonomous application development uses.

In August 2017, the company launched its banking payments solution. The launch of such new applications can be expected to drive higher margins for the company and accelerate its subscription renewal rate.

In August, the company launched Oracle Transportation Management Cloud and Oracle Global Trade Management Cloud. The newly launched service is expected to help its enterprise clients track shipments and delivery status.

Comparing R&D costs

On May 31, Oracle’s R&D costs totaled ~$1.5 billion. In the last five quarters, the company has spent ~$7.6 billion in R&D at an average of nearly $1.5 billion per quarter.

During the same timeframe, peers Microsoft (MSFT) and IBM (IBM) incurred average R&D expenses of $3.5 billion and $1.4 billion, respectively. The graph above shows Oracle’s R&D expenditure trend against these IT giants in the last five quarters. In the last five quarters, the average R&D expenses as a percentage of revenue for Oracle, Microsoft, and IBM totaled 7.0%, 13.0%, and 15.0%, respectively.

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