Oracle reported revenue and earnings at or above the high end of its guidance for its fiscal first quarter, bolstered by a cloud business that continues to grow faster than those of its major competitors. But it was a peek at the next generation of Oracle’s market-leading database system that was the highlight of the company’s financial call with analysts on September 14.
Oracle Executive Chairman and CTO Larry Ellison revealed on the call that the company will announce in two weeks the first “fully autonomous” database cloud service. Incorporating machine learning, this new version will not “require human beings either to manage the database or tune the database,” Ellison said.
Oracle plans for the forthcoming cloud database to have 99.995% system availability, which translates to less than 30 minutes of planned or unplanned downtime per year, Ellison said. To achieve that level of reliability, he said, Oracle’s database will have to automatically tune, patch, and upgrade itself while the system is running.
“But perhaps the most interesting aspect of autonomous systems, like self-driving cars and our new self-driving database, are the economics that surround total automation,” he said. “Self-driving cars eliminate the labor cost of driving, plus the high cost associated with human driving errors. Self-driving database eliminates the labor cost of tuning, managing, and upgrading the database, thus avoiding all of the costly downtime associated with human error.”
Customers that move from Amazon Web Services’ Redshift database to Oracle’s autonomous database can expect to cut their costs at least by half, Ellison said, “and Oracle will be providing SLAs that guarantee those cost savings.”
Contrasting these new automated features with those of Amazon’s database, he said: “AWS can’t do any of [this] stuff.”
Ellison will talk more about this database innovation at Oracle OpenWorld, at San Francisco’s Moscone Center starting October 1.
Soaring to the Cloud
The database news came amid Oracle’s report of FY2018 Q1 financial results. Total revenue in the quarter rose 7% from the year-earlier quarter, to $9.2 billion. Net income increased 21%, to $2.2 billion.
Oracle’s cloud software-as-a-service revenue rose 62% in the quarter, to $1.1 billion, while revenue from its combined platform-as-a-service and infrastructure-as-a-service businesses rose 28%, to $400 million.Oracle’s SaaS business grew more than twice as fast as Salesforce.com’s in the quarter, said Oracle CEO Mark Hurd, who also noted that the company has about 5,000 Fusion ERP customers and 12,000 NetSuite ERP customers, which represent 30 times the ERP customers of rival Workday.
Among the new ERP (enterprise resource planning, including financial software) customers Oracle landed in the quarter are Advance Auto Parts, Coach, Eurostar International, GlaxoSmithKline, Hilton Hotels & Resorts, Honda Motor, Nestlé, and US Steel, Hurd said.
Among the new Oracle Fusion human capital management (HCM) customers the company landed in the quarter are Baptist Health South Florida, Cantor Fitzgerald, China State Construction Engineering, Habitat for Humanity, Liberty Mutual Insurance, and the state of Nebraska, he said.
As Oracle’s SaaS business continues to grow dramatically, its gross profit margins are expanding as well—to 65% in the latest fiscal quarter, from 57% a year ago. “We expect to see further improvement in FY 2018 and remain committed to our goal of 80% SaaS [Non-GAAP] gross margins, possibly as soon as sometime in FY 2019,” CEO Safra Catz said.
Meanwhile, the gross margin for the company’s combined PaaS (cloud database, application development, middleware, analytics) and IaaS (cloud storage, compute, networking) businesses was 43% in the quarter, down from 58% a year ago, “as our geographic build-out goes forward in response to demand, but ahead of the bulk of new revenue recognition,” Catz explained. “When we are at scale, I expect to see major improvement in PaaS and IaaS gross margin.”
In response to a question from a financial analyst regarding Oracle’s new equity compensation program for its top executives, Ellison said he expects Oracle to attain an 80% (non-GAAP) gross margin across its cloud businesses and rise to a stock market capitalization that’s twice those of legacy competitors IBM and SAP.
“We think these are stretch targets, and it will take several years to achieve them, but we think we are well on our way,” Ellison said. “We obviously believe they are achievable, but it will require sustaining the kind of performance we’ve delivered over the last several quarters.”
Safe Harbor Disclaimer Statements in this article relating to Oracle’s future plans, expectations, beliefs, intentions, and prospects are “forward-looking statements” and are subject to material risks and uncertainties. Many factors could affect Oracle’s current expectations and actual results, and could cause actual results to differ materially. A discussion of such factors and other risks that affect Oracle’s business is contained in Oracle’s Securities and Exchange Commission (SEC) filings, including Oracle’s most recent reports on Form 10-K and Form 10-Q under the heading “Risk Factors.” These filings are available on the SEC’s website or on Oracle’s website at http://www.oracle.com/investor. All information in this article is current as of September 19, 2017, and Oracle undertakes no duty to update any statement in light of new information or future events.
Rob Preston is editorial director in Oracle's Content Central organization.