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Oracle’s Q2 Fiscal Earnings Leave Open Questions for Enterprise Software Vendors

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Last week, enterprise software vendor Oracle reported slightly increased revenues and profits for its fiscal Q2 financial results, and the implication remains for much higher Wall Street expectations for the company.

Revenues for the November ended fiscal quarter climbed a mere 2 percent while net income declined by 1.1 percent.

All-important software license and cloud subscription revenues slightly declined by 0.4 percent, which now reflects nearly 8 quarters of less than 5 percent revenue growth. However, Oracle management indicated that bookings for cloud-based applications actually increased by 35 percent and that the cloud-based provider will continue to compete aggressively among rivals in this market segment. To support that claim, the company forecasted between a 2 percent and 12 percent revenue increase from new software sales and subscriptions in this current quarter, which overlaps with customer’s calendar year closing quarters.

Prior to the earnings announcement, two Wall Street research firms, Jeffries and RBC Capital, released bearish comments regarding Oracle, lowering full year revenue forecasts for the company. The firms question increased competition in the database segment as well as increased competition from cloud providers Salesforce.com and Workday.

Supply Chain Matters is of the viewpoint that competition in the entire enterprise software and cloud-based software segment will greatly intensify in 2014 as the larger vendor’s battle for all-important market-share dominance.  They all need to convince investors of the long-term growth and profitability aspects of this business model, especially in the light of the billions spent on acquisitions of multiple smaller cloud-based providers.  IBM, SAP and other enterprise vendors have not exactly impressed investors with blowout revenues and earnings.

Last week, Oracle additionally announced that it had acquired email marketing automation provider Responsys Inc. for $1.5 billion, at roughly a 38 percent premium over the then current listed stock price. There has been strong speculation that other vendors including SAP were also looking at the company. Oracle had previously acquired Eloqua, another cloud-based player in the marketing automation segment.

As a whole, the large enterprise software vendors need to step-up their game in integrating all of their cloud-based acquisition prizes into the most attractive value-proposition for customers.  That may include aggressive pricing and discounting to gain market-share hold.

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