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Oracle: Finally Records Growth in Hardware Business

April 07, 2014 | About:
mitu77

mitu77

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Oracle (ORCL) is a company that dominates the relational database market, with almost 48% of the global market share under its belt. It has always been the leader in the software business, but over past few year oracle was also inclined towards hardware business. The inclination towards hardware business is exemplified by the fact that it struck a $7.4 billion deal to acquire Sun Microsystems. Although Oracle's major interest was JAVA platform, looking into its efforts with SPARC server, it cannot be missed that Oracle was always eyeing a hardware business of high-end servers. The hardware business for SUN then was a positive revenue stream which further gained Oracle's interest in bidding.

Oracle acquired SUN, and opened a new revenue stream as hardware business. But ever since the acquisition, it failed to impress the investor and revenue failed to record growth from the hardware business. It was moving down on comparable year quarters and also fiscal year over year.

Financial Growth in Hardware Business

Finally, Oracle’s hardware business has rebounded. It recently declared results for third quarter 2104. Reports show that oracle finally recorded a growth in its hardware business. The company recorded revenue of $725 million from its hardware business; this is growth of 8%. The hardware support revenue also witness a growth by 5% recording $598 billion. The growth in the hardware revenue was the result of oracle’s persistence with its strategies of enhancing features of the high end Sparc servers.

The overall revenue was recorded as $9.3 billion, up by 4%, while net income touched $2.6 billion, recording 2% growth.

What seems most impressive is that as various other companies are failing to record growth in High End servers, Oracle has a taken a U-turn to record growth. Hardware giants like IBM have been severely suffering from its hardware business to the extent that it plans to sell its server business.

Factors That Paid Off Oracle’s Hardware Segments

Oracle cloud application has been a high revenue segment for Oracle. Backward integration of Oracle cloud-based application helped in pushing up the Oracle hardware business.

Oracle engineered a system where it provided all solutions (hardware and software) under a single umbrella, which was fruitful to its hardware business.

“Oracle’s Engineered Server Systems, including Exadata and Sparc SuperClusters, achieved over a 30% constant currency growth rate in the quarter, while throughout the industry traditional high-end server product lines are in steep decline,” said Oracle CEO Larry Ellison

Journey Ahead

So now it seems that the hex has been broken for Oracle's hardware business and future results can witness a sustained positive growth. With cloud maturing, we foresee more and more business moving on to cloud and creating new market for high end servers. Oracle high end server is placed well with the maturing cloud business.

Oracle stays focused on cloud-enabled IT services. IDC reports foresee the cloud enabled IT services to grow at a CAGR of 23.5% over 2013 to 2017. It is also anticipates that more than 80% of the apps will be hosted as SaaS and are estimated to be a $30 billion market by 2017. Oracle is one of the bigger players in the market, offering cloud-enabled SaaS applications that can gain from this anticipated growth. SaaS-based applications are also predicated to grow at a CAGR of 29.7% over 2013 to 2017.

Looking at the market growth of cloud-enabled services and SaaS, Oracle's hardware business will always have a colorful future in term of revenue growth.

Conclusion

Oracle leaves no stone unturned in acquiring a bigger market share for a gamut of services that it offers out of the box. The company has a good history of paying regular dividends to its investors. The stock has an EPS of around $2.4 with PE of 16.7. It is a stock worth having in your portfolio to reap benefits in the longer run.


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