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Oracle will invest $2.4B quarterly in cloud business

Oracle will invest $2.4B quarterly in cloud business

Cloud services has been growing faster than license support business for the company.

Credit: Dreamstime

Oracle revealed it will continue to invest US$2.4 billion per quarter in its cloud business, which accelerated 48 percent in the second quarter, helping the company revenue grow 25 per cent year-on-year, without accounting for currency fluctuations.

Cloud services as a category, according to CEO Safra Catz, has been growing faster than license support. The company expects cloud infrastructure (IaaS) margins to improve in the coming quarters.

“Capex this quarter was US$2.4 billion as we continue to invest in our cloud to meet this accelerating demand," Catz said during an earnings call, according to a transcript from Motley Fool. “We now expect to spend about this amount per quarter for the next few quarters as we build capacity for our customers’ needs."

Oracle said it had triple-digit bookings growth in its IaaS services for the past two quarters and that the investments in cloud would not impact its margins. 

“I would note that IaaS gross margins improved again this quarter, and I expect IaaS gross margins will continue to improve,” Catz said. “This level of spend, though, will not negatively impact our operating margins as we scale.”

Oracle’s adjusted operating margin for the quarter expanded to 41 per cent from 39 per cent in the previous quarter.

“In Q2, Oracle’s total revenue grew 25 per cent in constant currency — exceeding the high end of our guidance by more than US$200 million. That strong overall revenue growth was powered by our infrastructure and applications cloud businesses that grew 59 per cent and 45 per cent respectively, in constant currency,” Catz said.

Total cloud revenue (SaaS and IaaS combined) stood at US$3.8 billion in the quarter, up 48 per cent year-on-year, without accounting for currency fluctuations. While IaaS accounted for US$1 billion in revenue, SaaS revenue for the company stood at US$2.8 billion.

In the last sequential quarter, cloud revenue for the company stood at US$3.6 billion against a total revenue of US$11.4 billion.

Oracle, which claims to have added “some” cloud infrastructure contracts over US$1 billion during the quarter, currently has 22,000 infrastructure customers utilising 55 cloud regions including public and national security regions, chairman Larry Ellison said during the earnings call.

For the third quarter, the company said it expected 46 per cent to 50 per cent growth in cloud revenue as against a 21 per cent to 23 per cent growth in overall revenue.

Double-digit growth across services

Oracle reported double digit growth across most of its businesses including Fusion Cloud ERP, NetSuite ERP and Cerner.

For the quarter ended November 30, Fusion Cloud revenue stood at US$600 million, up 28 per cent year-on-year. NetSuite revenue also stood at US$600 million, up 29 per cent year-on-year. Oracle has 11,000 and 30,000 customers across its Fusion Cloud and NetSuite businesses respectively.

Cerner, the company that Oracle had acquired for US$28.3 billion to focus its efforts on the healthcare sector, contributed US$1.5 billion to its total revenue in the second quarter.

Cerner, according to Ellison, is focused on automating hospitals, doctors’ clinics and healthcare providers along with coming up with an early warning system for pathogens that can lead to Covid-19-like pandemics.

Profits back on growth trajectory

Oracle, which reported a decline in profits in the previous quarter, said its net income grew on the back of reduced operating expense for the second quarter.

The company’s operating expense for the quarter stood at US$9.2 billion compared to US$11.1 billion for the corresponding period last year. It reported a net income of US$1.7 billion compared to US$1.2 billion for the same period last year.

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