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Oracle Q1: Cloud Business Up, But Software Business Flat While Hardware Revenue Plummets

Strong growth in cloud SaaS and PaaS sales helped buoy Oracle's revenue for the quarter in the face of flat on-premise software revenue and a big fall in hardware sales.

Oracle Thursday reported modest revenue growth for its fiscal first quarter of 2017 due in large part to its small but fast-growing cloud business.

However, investors slammed Oracle over troubles with its traditional software business by forcing its shares down more than 2 percent in after-hours trading.

Oracle said revenue for its fiscal first-quarter 2017, which ended Aug. 31, reached $8.6 billion, up 2 percent over the $8.45 billion the company reported for its first fiscal quarter of 2016.

[Related: Oracle's Micros Point-Of-Sale Systems Hit With Security Breach]

That included 59 percent growth in cloud revenue over last year to $969 million, led by massive 77 percent growth in cloud SaaS and PaaS sales.

However, that growth came with an 11 percent year-over-year fall in new software license revenue to $1.03 billion. That, combined with a 2 percent increase in software license updates and product support revenue, resulted in Oracle's total on-premise software revenue, the biggest part of its business, being flat year over year.

Oracle's hardware business also took a huge hit over last year, with hardware sales falling 19 percent and hardware support revenue falling 4 percent in the first fiscal quarter of 2017 compared with last year.

While Oracle's cloud business is still a relatively small percent of total sales, it appears to be a more profitable part of the company's business. Oracle reported income for its first fiscal quarter of 2017 of $1.83 billion, or 44 cents per share, on a GAAP basis, up 5 percent over last year's $1.75 billion. On a non-GAAP basis, Oracle reported earnings of 55 cents per share.

Analysts had been expecting revenue of $8.7 billion, with non-GAAP earnings per share of 58 cents, according to Barron's.

Oracle is on track to generate more than $2 billion of SaaS and PaaS annual recurring revenue, said Oracle Co-CEO Mark Hurd, in a prepared statement.

"We believe this will be the second year in a row that Oracle has sold more SaaS and PaaS than any cloud services provider. In the first quarter alone, we added more than 750 new SaaS customers including 344 new SaaS Fusion ERP customers—that’s more ERP customers than Workday has sold in the history of their company," Hurd said.


In the Americas, Oracle reported total year-over-year cloud and on-premise software revenue growth of 5 percent, with total hardware revenue falling 11 percent. However, Oracle's biggest growth in cloud and on-premise software came from the Asia-Pacific area, where revenue rose 12 percent.

Larry Ellison, Oracle chairman and CTO, said in a prepared statement that the Redwood Shores, Calif.-based company will use next week's annual Oracle OpenWorld conference to introduce the second generation of its Infrastructure-as-a-Service offering.

"Our Generation2 IaaS delivers twice the compute, twice the memory, four times the storage and 10 times more I/O at a 20 percent lower price than Amazon Web Services. IaaS represents a huge new cloud opportunity for Oracle to layer on top of our rapidly growing SaaS and PaaS businesses," Ellison said.

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