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Oracle's Q4 Earnings Highlight Major Transformation Spurred By Emerging Cloud Business

The software giant is close to consolidating its full stack of services in its second-generation bare-metal data centers, and delivering voice interfaces to its Fusion portfolio of business solutions

Oracle ended its fiscal year expressing optimism around a cloud business that has spurred rapid transformation in the software powerhouse's data center architecture and portfolio structure.

Oracle's cloud business is in early days—just taking off as large customers express interest in moving away from on-premises infrastructure, often by taking advantage of the "bring your own license" policy that allows transferring existing licenses to software they've migrated to the cloud, co-CEO Mark Hurd said on the fourth quarter earnings call on Tuesday.

As it looks to build off several large customer wins in the quarter, Oracle is focused on getting its latest products to market, including a new generation of autonomous databases still in the "embryonic phase" of customer adoption, Hurd said.

[Related: Oracle: Q3 Results Don't Adequately Reflect Potential For Cloud Growth]

The Redwood Shores, Calif.-based software giant is close to rolling out a new infrastructure model to drive more-efficient delivery of cloud services across the stack.

Founder and CTO Larry Ellison said Oracle is nearly done enabling all its Software-as-a-Service, Platform-as-a-Service and Infrastructure-as-a-Service products to run alongside each other on bare-metal servers in its second-generation data centers.

The consolidation of services into a standardized data center delivers significant economies of scale that will drive higher margins, Ellison told investors.

It will also make it easier for customers of Oracle Fusion business software to extend the SaaS capabilities using PaaS and IaaS.

"We think that's a big deal," Ellison said, as integration is a key differentiator between Oracle and cloud competitors primarily focused either on SaaS or IaaS.

Those business products, specifically Fusion ERP and Fusion HCM, will also soon benefit from AI-powered voice interfaces, Ellison said.

The same machine learning tools Oracle uses to enable voice interfaces are available to customers as PaaS services with which they can add custom speech recognition capabilities to Fusion, he said.

Reflecting the evolving nature of customer workloads, Oracle has changed its financial reporting structure.

Previously, Oracle reported all software licenses as on-premises sales, even as many customers were applying them to software running in the cloud, co-CEO Safra Catz said.

For its fourth quarter, ending May 31, Oracle recategorized its offerings, grouping all license revenue in the category of Cloud and On-Premise Software; and all As-a-Service and support products as Cloud Services and License Support.

The services and support category took in $6.77 billion in revenue for the quarter, for 8 percent year-over-year growth. Oracle sold $2.5 billion in licenses in that same period—a 5 percent contraction from the previous year.

Overall, Oracle's revenue grew 3 percent, to $11.3 billion. Earnings-per-share came in 5 cents above expectations of 94 cents, according to Thomson Reuters.

For the full fiscal year, revenue climbed by 6 percent to $39.8 billion. Cloud Services and License Support comprised $26.3 billion of that total, for 10 percent annual growth.

Catz said the revenue growth rate will accelerate "this year and beyond" as cloud becomes a larger percentage of overall sales.

But the guidance she shared for the coming year, one in which Oracle will adopt a new accounting standard, disappointed investors, sending the stock down to $44.60 per share in after-hours trading after Tuesday's close at $46.27.

Database license sales grew by 6 percent in the quarter, Hurd said, and those numbers don’t reflect the coming autonomous databases Oracle will continue rolling out over the summer, including an OLTP database service.

Those self-managing systems are still in trials and proofs of concepts, he said.

"Key thing for us is getting our products in the market," Hurd said.

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