Oracle reported dismal fourth-quarter 2014 results with both
earnings and revenues missing the Zacks Consensus Estimate.
However, management provided positive guidance for the first
quarter. The company's growth prospects in SaaS, PaaS and Big Data
are encouraging. We believe that the speedy adoption of engineered
systems and cloud suites will drive incremental top-line growth in
2015. However, Oracle s continuing transition from licensing, where
revenues are recognized upfront, to cloud subscription model where
it is realized over the years, will hurt near-term top line.
Nonetheless, higher SaaS & PaaS adoption is expected to provide
a recurring high-margin revenue base over the long term. However,
increasing mix of lower-margin IaaS will hurt profitability. We
believe that Oracle's cloud and hardware business will continue to
face stiff competition, a major headwind in the long run. We, thus,
maintain our neutral recommendation and set a price target of
Redwood City, Calif.-based Oracle Corp (ORCL) was founded in
1977 and incorporated later in 2005. Oracle is one of the largest
enterprise-grade database, middleware and application software
providers. With the acquisition of Sun Microsystems in Jan 2010,
Oracle began selling hardware products and services, primarily
comprising computer server and storage products.
Oracle's software and hardware products and services include
Oracle Database, Oracle Fusion Middleware, Java and Oracle
Engineered Systems. Oracle Engineered Systems include Exadata
Database Machine, Exalogic Elastic Cloud, Exalytics In-Memory
Machine, SPARC SuperCluster, Virtual Compute Alliance, Oracle
Database Appliance, Oracle Big Data Appliance and ZFS Storage.
Oracle's software and hardware systems are also used in
cloud-based environments. The company has expanded its cloud
computing operations over the last couple of years. Oracle offers
cloud solutions and services that can be used to build and manage
various cloud deployment models. Built upon open industry standards
such as SQL, Java and HTML5, Oracle Cloud provides access to
application services, platform services and infrastructure services
for a subscription. Through its Oracle Enterprise Manager offering,
the company manages cloud environments.
Oracle reported revenues of $38.28 billion in fiscal 2014. The
company operates in the Americas (53% of 2014 revenues), Europe,
the Middle East and Africa or EMEA (31%) and the Asia-Pacific
(16%). Oracle reports revenues under three heads Software and Cloud
(76% of fiscal 2014 revenues), Hardware systems (14%) and Services
The Software and Cloud segment includes New Software Licenses
and Cloud software subscriptions segment [also include
software-as-a-service (SaaS) and platform-as-a-service (PaaS)
offerings], Cloud infrastructure-as-a-service (IaaS) segment and
software license updates and product support segment. The Hardware
systems consist of two segments Hardware Systems Products and
Hardware Systems Support. The Services business provides
consulting, advanced customer support and training services.
The company sells its products and services primarily through
subsidiary sales and service organizations, as well as through
indirect channels such as original equipment manufacturers (OEMs),
distributors, large account resellers (LARs), value added resellers
(VARs), system integrators/implementers, consultants, education
providers, Internet service providers, network integrators and
independent software vendors. The company's customer base includes
large businesses, government agencies, educational institutions and
resellers. No single customer accounted for more than 10% of the
revenues in fiscal 2013.
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