Oracle's second-quarter earnings announcement beat expectations in some respects, but also raised a number of interesting and in some cases, unanswered questions. Here's a look.
Is Exadata carrying the day for Oracle's "engineered systems?": Oracle has struggled to grow top-line revenue for the hardware business it gained through the Sun acquisition, while voicing a constant mantra that it's focused on higher-margin "engineered systems" like the Exadata database machine. And indeed, hardware systems product revenues for Q2 fell 23 percent to $734 million.
During the conference call, co-president Mark Hurd said Oracle had sold more than 700 engineered systems in the quarter, but he didn't provide a breakdown, leaving open the question of whether Exadata, the first such machine Oracle introduced, is carrying the bulk of sales. Hurd also cited wins for the Exalogic application server box and Exalytics analytic appliance, but didn't give numbers. In addition, he didn't break out how many of those 700 sales were for the lower-cost Oracle Database Appliance, which is aimed at smaller companies.
What's selling in Fusion Applications?: Oracle spent years and billions of dollars to develop its next-generation Fusion Applications, which can be deployed both on-premises and in Oracle's cloud.
Oracle has touted that it has 100 Fusion products for sale now, spread over a number of functional pillars, such as financials, CRM (customer relationship management) and HCM (human capital management).
On the conference call, Oracle CEO Larry Ellison said the company is seeing rapid growth in Fusion across-the-board in CRM and in HCM."
It's also beating rival cloud HCM vendor Workday "in the majority of deals," Ellison said. Oracle is also having success with Fusion CRM against Salesforce.com, according to Hurd.
But co-president and CFO Safra Catz said "most of the [Fusion] pillars are doing very well." That means some, perhaps ERP (enterprise resource planning) among them, aren't catching fire just yet. Oracle is likely not worried about that, however, given the size of its E-Business Suite, JD Edwards and PeopleSoft ERP installed base.
How will Oracle manage the shift to cloud revenues?: Oracle has begun reporting new software license revenues and cloud subscription revenues as a combined total. In Q2, the take was up 17 percent to about $2.4 billion. During the conference call, co-president and CFO Safra Catz revealed that cloud sales accounted for $230 million of that.
The subscription model is common among cloud vendors but also a departure from Oracle's comfort zone, which has long consisted of large up-front perpetual license sales, following by predictable annual maintenance payments.
With cloud subscriptions, support is baked into the per-user, per-month pricing. But Oracle's traditional maintenance business is its lifeblood, carrying extremely high profit margins and taking up nearly half of all revenue in Q2.
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