Oracle licence sales continue to decline - and cloud fails to take up the slack

Software giant promises super-charged cloud growth to make up for it

Software giant Oracle has reported a sharper than expected fall in sales in its fiscal first quarter as software licence sales fell again.

Total revenues fell by 1.7 per cent to $8.45 billion in the quarter of the end of August - missing analysts' expectations for the third quarter in a row, according to Reuters.

However, new software licence sales declined substantially, from $1.37 billion in the same quarter last year to $1.15 billion - a fall of 16 per cent. Software licence updates and product support revenues also fell, albeit by less than one per cent to $4.7 billion.

While Oracle's sales have been squeezed, sales of cloud computing services haven't been able to make up the shortfall. Software and platform as a service sales increased by one-third to $451m, while cloud infrastructure sales also increased, albeit by half that percentage, from $138m to $160m.

Operating expenses also increased, pinching the company's profitability, pushing net income down by 20 per cent from $2.2 billion to $1.75 billion.

Oracle attributed the revenue squeeze to currency fluctuations, which made its results appear worse in US dollars than they would have looked in "constant currency", it suggested. But the company's stock price was nevertheless down by almost three per cent on the news that the company's software sales appear to be stalling - and that cloud has a long way to go in order to make up the shortfall.

"Our traditional on-premise software business, plus our new cloud business grew at a combined rate of 6 per cent in constant currency," said Oracle co-CEO, Safra Catz.

She continued: "This growth is being driven by new SaaS and PaaS annual recurring cloud subscription contracts, which almost tripled in the quarter.

"As our cloud business scales-up, we plan to double our SaaS [software-as-a-service] and PaaS [platform-as-a-service] cloud margins over the next two years - starting from 40 per cent this just completed quarter, to approximately 60 per cent this coming fourth quarter, and then on up to 80 per cent two years from now."

Fast-growing sales of cloud services, she added, would have a "huge impact on earnings-per-share growth going forward".

Catz's co-CEO Mark Hurd promised that cloud revenue growth in the fourth quarter "will be over 60 per cent".

He continued: "That cloud revenue growth rate is being driven by a year-over-year bookings growth rate of over 150 per cent in the first quarter. Our increasing revenue growth rate is in sharp contrast to our primary cloud competitor's revenue growth rates which are on their way down."

"We are still on target to book between $1.5 and $2.0 billion of new SaaS and PaaS business this fiscal year," said Oracle founder, executive chairman and chief technology officer Larry Ellison.

"That means Oracle would sell between 50 per cent more and double the amount of new cloud business than Salesforce.com plans to sell in their current fiscal year. Oracle is the world's second largest SaaS and PaaS company, but we are rapidly closing in on number one."