10 Key Takeaways From Oracle's Financial Analyst Briefing12:00 PM EST Mon. Sep. 30, 2013
Oracle executives held a briefing for financial analysts last week as the mammoth Oracle OpenWorld conference came to an end. The agenda included technology briefings by the company's product development executives, a financial briefing and Q&A sessions with CEO Larry Ellison and Presidents Mark Hurd and Safra Catz.
While the whole event was nearly five hours long, here are the most telling facts and the interesting moments.
"Yes, we have a hardware business. Yes, we have a services business. But at the core, Oracle is a software company," said Ken Bond, investor relations vice president, early in the presentation. "Software drives earnings for Oracle. Almost 90 percent of margin is driven by software."
Oracle acquired Sun Microsystems and its hardware product lines in 2010, and some of that hardware today is the foundation for Oracle's Engineered Systems line. Throughout the session, however, Oracle executives hammered home the point that those systems are platforms for Oracle's software products.
"Our entire intention with Engineered Systems is to package solutions for our customers so that they become the best way to implement our systems, our software," President Safra Catz said.
As outlined by Thomas Kurian (pictured), executive vice president of product development, Oracle's product strategy revolves around three points:
* Developing engineered systems;
* Developing "best-in-class" database, middleware and application software;
* Delivering that infrastructure, platform and application software through the Oracle Public Cloud.
* Of Oracle's $27.5 billion fiscal 2013 sales, 54 Percent of it came from recurring revenue from support services.
* In the fourth quarter of fiscal 2013, Oracle generated more than $6 billion in free cash flow.
* Oracle, during its history, has acquired nearly 100 companies at a cost of some $44 billion.
Oracle President Mark Hurd said the vendor's systems integrator partners have a mixed record of adapting to cloud computing.
Asked about the changing role of system integrators with cloud computing, Hurd said those partners are having to adapt to the "forced standardization" that cloud computing brings about, in contrast to the heavy customization work traditionally done by businesses and systems integrators with on-premise software.
"And there's a couple of ways to approach it. To embrace it or to fight it," Hurd said. "We have partners that are really embracing it, and they're growing with us significantly. And there are those that are going through changes." He declined to provide what he called "report cards" for specific systems integrator partners.
Asked about the biggest competitive threats to Oracle, co-presidents Mark Hurd and Safra Catz said executing the company's strategy is the major focus right now.
Noting that Oracle has 124,000 employees, including a rapidly growing sales force, Hurd said keeping those employees moving in the same direction is key. "We have to keep them led," he said. "Our biggest issue is really making sure we're in the field with clear, simple messages that we can give the customers as we go execute. That is job one. That is our job."
"Our competitive threats are ourselves. It's all about execution," Catz said.
SAP has been touting its HANA in-memory database this year as a competitive weapon against Oracle. Ellison responded: "I think SAP's choosing to compete with us in the arena of database, as opposed to the arena of business applications, is a huge mistake," Ellison said. "We've been in this database business a very, very long time. We think we're very good at it.
"We've had the dominant in-memory database technology for a decade. It's called Times Ten. We're the best at database in the world and we're going to be the best at in-memory database in the world. I don't think there's any question of that.
"I think they have made an enormous mistake to focus on HANA rather than on getting their business applications to the cloud," Ellison said of SAP. "Their core competency is in ERP and supply chain [applications] and things like that. I think this HANA thing is going to be a huge distraction for them. They have no chance whatsoever of competing with us on in-memory databases."
Ellison noted that the IT industry goes through phases with explosions of startups with new technologies followed by consolidation. "Cloud consolidation is in its early phases. And we're going to be a consolidator," he said.
The CEO said Oracle would continue to develop many cloud technologies in-house. But, acquisitions are also part of the plan: The company has bought a number of cloud software companies within the last 18 months, including Taleo, Nimbula and Eloqua.
Echoing earlier comments by Kurian, Ellison noted that Oracle offers products at all three levels of cloud technology: infrastructure-as-a-service (IaaS), platform-as-a-service (PaaS) and software-as-a-service (SaaS). "We're the only company who can be strong across all three layers of the cloud," he said.
"Our strategy has always been to have a complete and integrated portfolio of applications."
When an analyst asked about managing unstructured data, Ellison responded: "You mean like videos of cats? Cats playing and tumbling around. The cat videos."
He noted that some databases (he specifically mentioned Autonomy, now owned by Hewlett-Packard) positioned themselves as better able to handle unstructured data -- "like cat videos [and] photographs of your kids" -- while Oracle's database was better suited for structured data like "banking balances and, you know, payroll information and accounting information and customer data."
"By the way, we handle cat videos and photographs of your kids, too. But, it's not a huge money-maker for us," Ellison said to growing laughter.
"It's interesting how much people are willing to pay to store their cat videos. It's just way less than they're willing to pay to store, let's say, all their network configuration data at AT&T."
Ellison was asked about business opportunities created by The Internet of Things -- the growing ubiquity of sensors and other devices connected to the Internet.
"The Internet of Things, we think, is a huge opportunity for us, an Oracle opportunity, and a very, very big deal," Ellison said. He added that right now no company is providing an end-to-end development and deployment environment for The Internet of Things. "And we're going to do that. We think we have the right pieces in Java and the Oracle database."
Ellison then surprised the audience by describing how sensors and other Internet of Things technology are being added to the power grid, agricultural systems and desalination plants on Lanai, the Hawaiian island of which Ellison owns about 98 percent.
"We're building a huge Internet of Things on the island of Lanai as a laboratory," he said.
Ellison irked many of the 60,000 Oracle OpenWorld attendees Tuesday when he skipped his scheduled keynote speech and instead went to watch what proved to be the next-to-last race in the America's Cup sailing match. Oracle's sponsored sailboat ultimately won the competition.
There were lots of grumbling and some pretty nasty comments on Twitter about Ellison's absence. "I love that Larry Ellison blew off his own keynote to watch his sailboat race. Says everything you need to know about the guy," tweeted one attendee.
"That's the only presentation I've missed in 25 years," Ellison said. "There were a lot of tweets that were not good. I hope people in time will forgive me."