Oracle Q1 Earnings: CTO Ellison Calls GenAI ‘A Boon’ To Database Business
Wade Tyler Millward
‘You can’t build any of these AI models without enormous amounts of training data,’ Oracle CTO Larry Ellison says.
The growth of artificial intelligence and generative AI will benefit Oracle, co-founder and Chief Technology Officer Larry Ellison told listeners on the vendor’s latest quarterly earnings call.
Companies will seek their own specialized versions of GenAI programs such as ChatGPT – a text-generator created by Microsoft-backed OpenAI.
And to use one example of where Oracle can benefit, a vector database offering from the vendor will contain anonymized electronic health records and other specialized training data for health care companies, he said.
“You can’t build any of these AI models without enormous amounts of training data,” he said. “If anything, what generative AI has shown is that the big issue about training one of these models is just getting this vast amount of data ingested into your GPU supercluster. It is a huge data problem, in the sense (that) you need so much data.”
Oracle Q1 Earnings
Ellison continued: “We think it’s a boon to our business. And we are now getting into the deep water of the information age. Nothing has changed about that. The demands on data are getting stronger and more important.”
His remarks came during the Austin, Texas-based database and cloud products vendor’s earnings call Monday to report results for its first fiscal quarter, which ended Aug. 31.
Ellison said that AI is a recurring opportunity for Oracle as well because companies will need to keep training models on new data, Ellison said. Legal services will need to train models on new judgments and court cases. Research firms will have to train on newly published studies.
“We’re going to be very, very competitive across the board, whether it’s training or inferencing,” Ellison said. “We’re pretty confident that we’ve got a cost performance advantage.”
Still, despite the AI enthusiasm and growth across Oracle’s cloud offerings, the vendor’s stock tumbled after hours due to less revenue generated in the quarter than analysts expected.
Oracle reported $12.45 billion for the quarter, $20 million below expectations, according to CNBC.
Oracle’s stock fell about 9 percent after hours Monday, trading at about $116 a share.
Currency, Cerner, Data Centers
Oracle CEO Safra Catz put part of the blame for the vendor’s revenue miss on currency exchange rates, electronic medical system provider subsidiary Cerner and data center construction.
Catz said that Oracle “saw a modest currency tailwind” on the call.
She characterized Oracle’s “biggest challenge” as “building data centers as quickly as possible” to meet demand. Oracle has 64 cloud regions live plus 44 public cloud regions worldwide and another six being built, she said.
Twelve of those public cloud regions interconnect with Microsoft Azure. And Oracle has nine dedicated regions live and 11 more planned plus nine security regions live.
The vendor is at work building “many, many more data centers than any other cloud provider,” Ellison said. “We have performance advantages, we have security advantages, and that’s why we’re growing much faster than any of the other hyperscalers.”
Regarding Cerner, as Oracle works to move the subsidiary to the cloud and change its business model to recurring revenue, that transition has resulted “in some near term headwinds to the Cerner growth rate as customers move from licensed purchases – which are recognized upfront – to cloud subscriptions, which are recognized ratably.”
“Excluding Cerner, I remain committed to accelerating our total revenue growth rate this fiscal year as well as maintaining our current high – the high cloud growth rates for the year,” Catz said.
Oracle’s executives on the call tried to quell concerns by pointing to business wins. Ellison said that the nine utility companies owned by Warren Buffett’s holding company Berkshire Hathaway are replacing existing enterprise resource planning (ERP) systems and standardizing on Oracle Fusion Cloud applications.
Ellison estimated that Oracle has 95 percent of the cloud ERP market for live customer use.
GenAI An Oracle Cloud Opportunity
AI development companies – including Elon Musk’s xAI – have signed contracts to purchase more than $4 billion of AI training capacity in Oracle’s Gen2 Cloud, Ellison told listeners. That’s twice as much AI training as Oracle booked at the end of Oracle’s fourth fiscal quarter.
Oracle’s remote direct memory access (RDMA) interconnected Nvidia superclusters are a differentiator for the vendor, Ellison said.
They train AI models twice as fast at half the cost of other clouds, Ellison said, without naming competitors. And they go beyond AI use cases, including the ability to build faster databases and achieve automation.
When it comes to training graphics processing units (GPUs), Ellison said that “in some cases, our prices for GPU training – which are very profitable, by the way, for us … our prices are lower than the cost of other hyperscalers doing the training.”
Oracle is also making use of GenAI internally with its updating of subsidiary electronic health systems provider Cerner. The vendor has used its application generator Apex to write code for the next version of Cerner.
“It’s coming along very, very nicely,” he said.
Oracle Previews CloudWorld News, Microsoft Expansion
During the call, Catz offered a preview for the news to come out of Oracle CloudWorld 2023, which runs from Sept 18 to Sept. 21 in Las Vegas.
Attendants can expect to see AI capabilities with Oracle Cloud Infrastructure (OCI) and updates to Oracle Autonomous Database.
Oracle will also detail its multi-cloud strategy and growth of Oracle Analytics throughout the portfolio to drive better decision making, Catz said. The vendor will also show GenAI capabilities in Fusion, NetSuite and Oracle industry applications.
Ellison also teased a joint virtual press conference happening Thursday with Microsoft CEO Satya Nadella. The two tech titans will discuss an expansion in the two vendors’ partnership.
“In our upcoming announcement with Microsoft later this week, we will be substantially expanding our existing multi-cloud partnership with Microsoft by making it easier for Microsoft Azure customers to buy and use the latest Oracle Cloud database technology in combination with Microsoft as your cloud services,” he said. “Satya and I will discuss the details of our expanding partnership at Microsoft headquarters in Redmond on the 14th.”
Oracle Q1 In Detail
Total revenue during Oracle’s first fiscal quarter was $12.5 billion, up 8 percent year over year ignoring currency exchange.
Cloud services and license support revenue was $9.5 billion, up 12 percent year over year ignoring currency exchange. Cloud license and on-premises license revenues dropped 11 percent year over year to $800 million.
Cloud revenue including infrastructure-as-a-service (IaaS) and software-as-a-service (SaaS) was $4.6 billion, up 29 percent year over year ignoring currency exchange. SaaS represented most of that revenue, bringing in $3.1 billion during the quarter, up 17 percent year over year.
IaaS revenue came in at $1.5 billion for the quarter, up 64 percent ignoring currency exchange.
Fusion Cloud ERP brought in $800 million during the quarter, up 20 percent year over year.
NetSuite Cloud ERP brought in $700 million, up 21 percent year over year.
Operating income for the quarter was $3.3 billion using generally accepted accounting principles (GAAP). GAAP net income was $2.4 billion. Operating cash flow was $7 billion, up 9 percent year over year. Free cash flow was $5.7 billion, up 21 percent.
Catz told listeners that the vendor signed “several” OCI deals greater than $1 billion in total value.
Oracle’s remaining performance obligation (RPO) was about $65 billion in the quarter. The portion excluding Cerner grew 11 percent, she said. About half of that RPO will get recognized as revenue over the next 12 months.
“Customer momentum is continuing to build,” she said. “This momentum is turning into bookings. And that gives me the confidence that our annual revenue growth will continue to accelerate moving forward.”