Oracle Corporation is a leading technology company that operates through three main business segments: cloud and license, hardware, and services. The company provides a wide range of products and services, including cloud services, license support, engineered systems, and industry-specific hardware, to help customers access and optimize Oracle Cloud applications and infrastructure technologies . Oracle's business model emphasizes flexibility and interoperability, offering on-premise, cloud-based, and hybrid IT deployment models to meet diverse customer needs .
- Cloud and License - Offers cloud services and license support, providing customers access to Oracle Cloud applications and infrastructure technologies, along with cloud license and on-premise license offerings .
- Hardware - Involves the sale of Oracle Engineered Systems, servers, storage, and industry-specific hardware, along with related software and support services .
- Services - Provides services to help customers maximize the performance of their Oracle applications and infrastructure technologies .
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What went well
- Oracle Cloud Infrastructure (OCI) is experiencing significant growth, with gross margins improving as it scales, indicating increasing profitability in this business segment. Safra Catz highlighted that OCI's margins continue to improve due to software-driven optimization and automation, leading to better operating margins.
- Cloud database services revenue grew 28%, reaching an annualized revenue of $2.2 billion, with multi-cloud database services on AWS, Azure, and Google growing from zero to over $100 million run rate and expected to become a multibillion-dollar business. Lawrence Ellison emphasized that multi-cloud will be a rapidly growing multibillion-dollar business for Oracle.
- Strong demand and expanding pipeline for Oracle's cloud services, including OCI, with capacity coming online to meet this demand, leading to expected acceleration of revenue growth in the second half of the year. Safra Catz mentioned that Remaining Performance Obligation (RPO) is expected to increase due to the signing of large contracts.
What went wrong
- The transition to cloud database services is still in its early stages, with Safra Catz stating that the migration is "only at the beginning," suggesting potential delays in revenue contributions from this segment.
- There were corrections and miscommunications regarding Non-GAAP EPS guidance during the call, with Safra Catz needing to correct her statements, which could raise concerns about management's communication clarity.
- Analysts express skepticism about the profitability of the GPU and base infrastructure businesses, questioning if these segments are "not as profitable," despite claims of margin improvements.
Q&A Summary
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OCI Growth and CapEx Outlook
Q: How does OCI's architecture affect CapEx growth over next 5 years?
A: Oracle's OCI uses modular, standardized racks, allowing them to build data centers starting at under 50 kilowatts up to 1.6 gigawatts, making them easy and cheap to manufacture and automate. This flexibility lets them match CapEx closely with revenue, avoiding long periods with empty centers, and expand data center regions more efficiently than competitors, favorably impacting CapEx growth over the next five years. -
Database Migration to Cloud and Multi-Cloud Strategy
Q: What's the progress on database migration to cloud and revenue outlook?
A: Cloud database services have grown to an annualized revenue of $2.2 billion, mostly from OCI. Multi-cloud partnerships have grown from zero to over $100 million run rate, expected to exit with hundreds of millions and become a multibillion-dollar business. Oracle sees enormous customer demand for migrating databases to the cloud, including dedicated regions for regulatory or sovereignty reasons, an offering only they have. -
OCI Gross Margins Improvement
Q: How are OCI gross margins progressing amid growth?
A: OCI's gross margins continue to improve due to Oracle's automation and software optimizations. Despite perceptions that GPU or base infrastructure businesses are less profitable, their margins in OCI are increasing with scale, even as they invest. Operating margins in OCI have improved again, contributing to overall profitability enhancements. -
AI Infrastructure and GPU Clusters
Q: Are there diminishing returns in scaling GPU clusters for AI?
A: Oracle believes speeding up AI training involves not just larger GPU clusters but also faster networks to move data efficiently. They invest heavily in network software and hardware to avoid bottlenecks, ensuring GPU clusters aren't idle waiting for data. As networks get faster, AI training accelerates without diminishing returns, maintaining their leadership in AI infrastructure. -
SaaS Business Growth
Q: What's driving strong growth in SaaS, especially back office systems?
A: There's significant interest in back office systems as companies seek efficiency. Oracle's SaaS growth is fueled by demand for automation, simplification, and AI capabilities that help businesses spend less and serve customers better. Booking trends have taken a marked step-up, accelerating significantly from last year, indicating robust growth in both back and front office SaaS offerings.
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Oracle's CapEx is expected to double in fiscal year 2025 compared to FY24; given this significant investment, how does Oracle plan to manage the risk of underutilization if demand does not meet expectations, and what measures are in place to align CapEx with actual revenue growth?
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OCI's impressive growth is largely driven by AI workloads, with GPU consumption up 336% in the quarter; how sustainable is this growth given the competitive landscape, and how does Oracle plan to maintain robust margins amidst potential pricing pressures and increased competition in AI infrastructure services?
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Oracle's multi-cloud partnerships with Azure, Google, and AWS are still relatively new; could you elaborate on the challenges Oracle faces in expanding these partnerships, especially since these partners are also competitors, and how does this impact your strategy for migrating databases to the cloud?
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With the Remaining Performance Obligation (RPO) reaching $97.3 billion but only 39% expected to be recognized over the next 12 months, is there concern about potential delays or cancellations affecting revenue recognition, and how does this impact Oracle's revenue visibility and predictability?
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Given Oracle's substantial reliance on NVIDIA GPUs for AI workloads and the 336% increase in GPU consumption, how is the company addressing potential supply chain risks or dependency on a single hardware supplier, and what strategies are in place to mitigate these risks?
Q2 2025 Earnings Call
- Issued Period: Q2 2025
- Guided Period: Q3 2025
- Guidance:
- Total Revenue Growth: Expected to grow from 9% to 11% in constant currency and 7% to 9% in USD .
- Total Cloud Revenue Growth: Expected to grow from 25% to 27% in constant currency and 23% to 25% in USD .
- Non-GAAP EPS Growth: Expected to grow between 7% to 9% and be between $1.50 and $1.54 in constant currency; 4% to 6% and be between $1.47 and $1.51 in USD .
- Currency Impact: Expected to have a $0.03 negative effect on EPS and a 2% negative effect on revenue .
- Tax Rate: Assumes a base tax rate of 19% .
- Investment Loss Impact: EPS negatively impacted by $0.05 due to an investment loss .
Q1 2025 Earnings Call
- Issued Period: Q1 2025
- Guided Period: Q2 2025
- Guidance:
- Total Revenue Growth: Expected to grow from 7% to 9% in constant currency and 8% to 10% in USD .
- Total Cloud Revenue Growth: Expected to grow from 23% to 25% in constant currency and 24% to 26% in USD .
- Non-GAAP EPS Growth: Expected to grow between 6% to 10% and be between $1.42 and $1.46 in constant currency; $0.08 to $0.12 and be between $1.45 and $1.49 in USD .
- Base Tax Rate: Assumed to be 19% .
Q4 2024 Earnings Call
- Issued Period: Q4 2024
- Guided Period: Q1 2025 and FY 2025
- Guidance:
- Q1 2025 Guidance:
- Total Revenue Growth: Expected to grow from 6% to 8% in constant currency; 5% to 7% in USD .
- Total Cloud Revenue Growth: Expected to grow from 21% to 23% in constant currency; 20% to 22% in USD .
- Non-GAAP EPS Growth: Expected to grow between 11% to 15% and be between $1.33 and $1.37 in constant currency; 10% to 14% and be between $1.31 and $1.35 in USD .
- Currency Impact: Expected to have a negative 1% effect on revenue and a $0.01 to $0.02 negative impact on EPS .
- Base Tax Rate: Assumes a base tax rate of 20% .
- FY 2025 Guidance:
- Cloud Infrastructure Services Growth: Expected to grow faster than the 50% reported in FY 2024 .
- CapEx: Expected to be double what it was in FY 2024 .
- Beyond FY 2025: Commitment to FY 2026 financial goals .
- Q1 2025 Guidance:
Q3 2024 Earnings Call
- Issued Period: Q3 2024
- Guided Period: Q4 2024
- Guidance:
- Total Revenues: Including Cerner, expected to grow from 4% to 6%; excluding Cerner, from 6% to 8% .
- Total Cloud Revenue: Excluding Cerner, expected to grow from 22% to 24% .
- Non-GAAP EPS: Expected to be down 2% to flat and be between $1.62 and $1.66 .
- Base Tax Rate: Assumed to be 19% .
Competitors mentioned in the company's latest 10K filing.
- Adobe Systems Incorporated
- Alphabet Inc.
- Amazon.com, Inc.
- Cisco Systems, Inc.
- Intel Corporation
- International Business Machines Corporation
- Microsoft Corporation
- Salesforce, Inc.
- SAP SE
- Hewlett-Packard Enterprise
- Workday, Inc.
- Allscripts Healthcare Solutions, Inc. (following acquisition of Cerner Corporation)
- Arcadia Solutions (following acquisition of Cerner Corporation)
- athenahealth, Inc. (following acquisition of Cerner Corporation)
- Epic Systems Corporation (following acquisition of Cerner Corporation)
- InterSystems Corporation (following acquisition of Cerner Corporation)
Recent developments and announcements about ORCL.
Corporate Leadership
Leadership Change
Edward Screven is leaving Oracle Corporation after 38 years, having served as Executive Vice President and Chief Corporate Architect. He announced his intention to retire by the end of February 2025. Reason for leaving: Retirement. Transition: He will assist in the transition of his duties until his retirement and will continue to represent Oracle on the Board of Directors of Ampere Computing Holdings LLC.
Financial Reporting
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Revenue and Profit Performance: Oracle reported total revenues of $14.1 billion, which is a 9% increase from the previous year. The gross profit for cloud services and license support grew by 9%, and the operating income increased by 10% with an operating margin of 43% .
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Cloud and AI Growth: Oracle's cloud services, particularly Oracle Cloud Infrastructure (OCI), saw significant growth. OCI revenue was up 52%, and the cloud database services now have an annualized revenue of $2.2 billion. Oracle's AI infrastructure is also expanding, with the company delivering the world's largest AI supercomputer, scaling up to 65,000 NVIDIA H200 GPUs .
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Forward Guidance: Oracle expects total revenue to grow between 9% to 11% in constant currency for the next quarter. The company also anticipates cloud revenue to reach $25 billion this fiscal year, driven by its strategic SaaS applications and multi-cloud agreements with major providers like Microsoft, Google, and AWS .
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Market Conditions and Strategic Initiatives: Oracle is focusing on expanding its cloud regions, with 98 currently live and more planned. The company is leveraging its Gen 2 architecture to offer flexible and scalable cloud solutions, which is a strategic advantage over competitors .
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Analyst Questions and Management Responses: Analysts inquired about the growth and architectural differences of OCI, the impact on CapEx, and the profitability of Oracle's cloud services. Oracle executives highlighted the modular and automated nature of their cloud infrastructure, which allows for efficient scaling and improved margins .
Earnings Call
Oracle has released its earnings call transcript for the second quarter of fiscal year 2025. Here are the key points from the call:
Overall, Oracle is experiencing robust growth in its cloud and AI segments, with strategic initiatives aimed at expanding its market presence and enhancing profitability.
Earnings Report
Oracle Corporation has released its fiscal 2025 second quarter financial results. Total quarterly revenues increased by 9% year-over-year to $14.1 billion in both USD and constant currency. Cloud services and license support revenues rose by 12% to $10.8 billion. The cloud license and on-premise license revenues saw a modest increase of 1% in USD and 3% in constant currency, reaching $1.2 billion .
GAAP operating income for the quarter was $4.2 billion, while non-GAAP operating income was $6.1 billion, reflecting a 10% increase. The GAAP operating margin stood at 30%, and the non-GAAP operating margin was 43%. GAAP net income was reported at $3.2 billion, and non-GAAP net income was $4.2 billion, up 12% in both USD and constant currency. GAAP earnings per share increased by 24% to $1.10, and non-GAAP earnings per share rose by 10% to $1.47 .
Significant growth was noted in Oracle's cloud infrastructure segment, with Cloud Infrastructure (IaaS) revenue up by 52% to $2.4 billion. The Cloud Application (SaaS) revenue increased by 10% to $3.5 billion. The Fusion Cloud ERP (SaaS) revenue grew by 18% to $0.9 billion, and the NetSuite Cloud ERP (SaaS) revenue rose by 20% in USD to $0.9 billion .
Oracle's CEO, Safra Catz, highlighted the record level AI demand that drove the significant increase in Oracle Cloud Infrastructure revenue, noting a 336% increase in GPU consumption during the quarter. Oracle's collaboration with Meta on AI Cloud Infrastructure was also emphasized, showcasing Oracle's role in training generative AI models .
The board of directors declared a quarterly cash dividend of $0.40 per share, payable on January 23, 2025, to stockholders of record as of January 9, 2025 .