Oracle Update: All Eyes on the Cloud as Hardware Sales Recover

Oracle‘s (NASDAQ:ORCL) stock was pounded after its earnings announcement on December 20, as it posted flat software sales, and a decline in hardware sales in its two most important markets – Europe and the U.S. It crashed nearly 10%, but has been almost flat since then. Oracle competes primarily with Salesforce.com (NYSE:CRM), SAP (NYSE:SAP) and Microsoft (NASDAQ:MSFT) in enterprise software. There haven’t been many significant developments related to Oracle in the last couple of weeks, save a few.

See our complete analysis for Oracle stock

Focus on cloud-based software and hardware margins

Oracle is focusing on cloud-based software to drive sales growth in the coming years as demand for cloud-based software in the enterprise increases. It recently acquired RightNow, a leading provider of cloud-based customer service, in order to get a better footing in on-demand software. Last week, the acquisition was approved by RightNow’s shareholders.

In the last quarter, it also added 1,700 sales professionals to its global workforce and aims to increase sales of cloud-based ERP and CRM software in the coming quarters. We expect cloud-based software to account for a significant portion of Oracle’s software revenues going forward.

Oracle also continues to focus on the sales of its own engineered hardware systems like Exadata, Exalytics and Big Data appliance to improve its gross hardware margins, while phasing out legacy, low-margin hardware.

Enterprise software – database, middleware and application software – accounts for almost 80% of Oracle’s Trefis price estimate, while hardware accounts for 10%. Our current $37 Trefis price estimate for Oracle stands nearly 35% above its current market price.

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