Oracle (NASDAQ:ORCL) will report its Q3 FY12 earnings on March 20. Oracle had a rocky last quarter with almost flat earnings as the software sales were sluggish and the hardware sales declined. Oracle has been trying to improve its hardware sales and gross margins since the time it acquired Sun Microsystems. We will also closely watch its cloud strategy, now that it has finally woken up to the rapidly growing cloud-based enterprise software market with many big players such as Salesforce.com (NYSE:CRM), SAP (NYSE:SAP) and Microsoft (NASDAQ:MSFT).
Enterprise Cloud: A Crucial Market for Oracle
Oracle, which ignored the cloud-based enterprise software space for years, has realized that it will need to move rapidly into the space in order to stay relevant. It announced the Oracle Public Cloud last year and has been on an acquisition spree since.
It acquired a few large cloud-based software makers, such as RightNow and Taleo, to counter SAP’s acquisition of SuccessFactors and combat Salesforce.com, one of the leaders in enterprise cloud computing. We expect Oracle’s cloud-based software offerings to generate increasing revenues in the coming years as it integrates its acquired products into its own cloud portfolio and cross markets them to existing customers.
Another major trend Oracle is trying to capitalize is Big Data. It recently launched the Exalytics in-memory appliance, which competes directly with SAP’s popular HANA offering. It also launched Advanced Analytics that enables users to run scripts for business intelligence applications in its Big Data appliance. Since SAP’s HANA has already been in the market for about a year, it’ll be interesting to see what Oracle has in mind to capture some market share in this space.
Enterprise hardware offerings like the Exalytics appliance will not only help the company ride the Big Data trend but also enable it to improve its hardware margins by phasing out older legacy hardware, launching new high-margin hardware and bundling it with its software products. Though its hardware revenue has taken a hit in recent times, we expect it to improve in the coming years.
We currently have a $38 Trefis price estimate for Oracle, which stands nearly 25% above its market price. Database, middleware and application software accounts for nearly 80% of its value, while enterprise server and storage hardware accounts for more than 10%.