Oracle plans move to web services to boost margins

Chief financial officer says shift to cloud computing will make firm more profitable

Oracle executive vice president of product development Thomas Kurian delivers a keynote speech at the All Things Oracle OpenWorld Summit in  California. Photograph: Jana Asenbrennerova/Reuters

Oracle executive vice president of product development Thomas Kurian delivers a keynote speech at the All Things Oracle OpenWorld Summit in California. Photograph: Jana Asenbrennerova/Reuters

 

Technology firm Oracle will boost operating margins by shifting to services delivered via the web from software installed on computers, chief financial officer Safra Catz said.

Oracle will be more profitable as technology spending is directed toward cloud-computing tools, Ms Catz said at a meeting with analysts in San Francisco.

Analysts project on average that Oracle will reach an operating margin of 48 per cent for the fiscal year through May, compared with 39 per cent in the previous year .

After spending more than $50 billion on acquisitions in the past decade, fueling an expansion in sales and earnings, Oracle is seeking new sources of growth. The software maker is grappling with Salesforce. com, Workday and other competitors delivering software via the internet, leading Oracle to buy and develop its own cloud-computing products.

“They’re caught up in this transition between perpetual licensing and cloud,” said Brent Thill, an analyst at UBS AG who has a buy rating on the shares.

Oracle’s hybrid approach of selling software that runs on businesses’ own computers and also over the web is necessary for customers in financial services, telecommunications and government that aren’t ready to move entirely to the cloud, he said.

Ms Catz predicted Oracle is poised to gain market share amid shifts to mobile and web-based services, regardless of the state of the economy.

“Oracle will be left in the dust - I’ve probably heard it half a dozen times,” she said. “Whatever the economy brings us, we will ultimately gain share.”

Chief executive Larry Ellison has charted a course for Oracle that relies on selling customers complete systems of computer servers, databases and application-connecting middleware to reverse slowing growth.

“You put all these pieces together,” Mr Ellison said. “It’s kind of like configuring the boat - it’s not any one thing.”

The company this week introduced a way for customers of its new database software, called 12c, to run their existing applications by putting more of the data into computer memory instead of on disk for faster transaction processing and data analysis, challenging SAP.

The California-based company on September 18th gave a weaker-than-projected profit forecast for the fiscal second quarter, which ends in November. Sales are also slowing - they were unchanged last year and analysts on average predict 3 percent growth this year, according to data compiled by Bloomberg. Revenue increased by double digits for much of the past decade.

Oracle’s compensation policies have also come under some scrutiny. CtW Investment Group, part of the labour group Change to Win, is urging Oracle to appoint a new director to oversee compensation practices. The group is also opposing the use of stock options to pay Mr Ellison and other executives, said Michael Pryce-Jones, a research analyst at CtW, which holds six million Oracle shares.

In a letter sent this week to Bruce Chizen, the chairman of Oracle’s compensation committee and the former CEO of Adobe Systems, CtW also urged Oracle to adopt industry pay benchmarks.

Oracle plans to hold its annual shareholder meeting on October 31st. Mr Ellison’s pay package declined 18 per cent to $78.4 million for fiscal 2013 after he gave up an annual bonus and the company missed some of its profit targets. (Bloomberg)

The Irish Times Logo
Commenting on The Irish Times has changed. To comment you must now be an Irish Times subscriber.
SUBSCRIBE
GO BACK
Error Image
The account details entered are not currently associated with an Irish Times subscription. Please subscribe to sign in to comment.
Comment Sign In

Forgot password?
The Irish Times Logo
Thank you
You should receive instructions for resetting your password. When you have reset your password, you can Sign In.
The Irish Times Logo
Please choose a screen name. This name will appear beside any comments you post. Your screen name should follow the standards set out in our community standards.
Screen Name Selection

Hello

Please choose a screen name. This name will appear beside any comments you post. Your screen name should follow the standards set out in our community standards.

The Irish Times Logo
Commenting on The Irish Times has changed. To comment you must now be an Irish Times subscriber.
SUBSCRIBE
Forgot Password
Please enter your email address so we can send you a link to reset your password.

Sign In

Your Comments
We reserve the right to remove any content at any time from this Community, including without limitation if it violates the Community Standards. We ask that you report content that you in good faith believe violates the above rules by clicking the Flag link next to the offending comment or by filling out this form. New comments are only accepted for 3 days from the date of publication.