Oracle’s Ellison: Cloud Revenue Grew Because We’re ‘Faster Than Competitors’ Clouds’

‘Oracle’s unique set of hardware and software building blocks enable our Gen 2 cloud to deliver much higher performance than any of our cloud competitors. And in the cloud, since you pay by the minute, if you run twice as fast—and we do— you pay half as much,’ says Oracle CTO Larry Ellison on the company’s fourth-quarter earnings call.

Oracle reported a record $50 billion in revenue for its 2023 fiscal year during its quarterly earnings report Monday, with executives saying the database and cloud vendor’s offerings beat those of competitors including Amazon and SAP.

When asked by an analyst during Monday’s earnings call, which covered the fourth quarter and fiscal year ended May 31, how Oracle’s cloud offerings appear to grow while other vendors have contended with a slowdown since the height of the pandemic and peak of demand for remote working tools, Oracle executives credited cost savings and technical prowess.

“We have compelling technology at a much lower price,” said Safra Catz, CEO of Austin, Texas-based Oracle. “And that’s without a doubt causing our customers to move to us more quickly.”

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Oracle Fourth-Quarter Results

Oracle Executive Chairman and CTO Larry Ellison added that the company he co-founded in 1977 “can build GPUs that other people can’t” because of the vendor’s fast remote direct memory access (RDMA) network.

“Most of the things you run in the Oracle Cloud are going to be much faster than our competitors’ clouds because they don’t use that kind of network,” he said. “So you have huge cost advantages across a broad portfolio of applications.”

Ellison said that Oracle’s MySQL database with the HeatWave fat query processor has given some customers 1,000 times faster query processing compared with Amazon Aurora.

He also said that Fusion ERP implementation costs one-tenth of the amount of a comparable SAP ERP offering, and Oracle is outperforming Amazon and SAP.

“We’re seeing that migration, and we’re taking a lot of market share from our competitors,” he said. “That’s why we’re doing better and they’re not doing quite as well.”

AI Demand An Opportunity

Catz told analysts on the call that since fiscal year 2020 when Oracle experienced flat growth, the vendor saw its back-office SaaS business more than double in size. Consumption for its Gen 2 Oracle Cloud Infrastructure (OCI) offering grew seven times larger. All that came despite the company exiting its $500 million business in Russia.

“While competitors have seen their growth rates drop precipitously over the last year, our cloud infrastructure growth rates have essentially doubled from last year to 77 percent this quarter and with Gen 2 OCI growth even higher,” Catz said. “Looking ahead, I see even more growth opportunities that should help power future growth acceleration in the future. … Our exploding AI demand leaves us significant upside.”

Catz and Ellison told analysts they are still “at the very beginning” of moving critical customer workloads to the cloud.

“The less technical companies are now beginning their journey of looking more closely at the Oracle Cloud,” Ellison said. “And when they do look closely, we compare very favorably with the other clouds.

“Oracle’s unique set of hardware and software building blocks enable our Gen 2 cloud to deliver much higher performance than any of our cloud competitors,” he continued. “And in the cloud, since you pay by the minute, if you run twice as fast—and we do— you pay half as much.”

When it comes to generative AI, Oracle’s cloud data centers are optimized for large-scale GPU clusters used for training Large Language Models (LLMs) used in this new technology, Ellison said.

Oracle has partnered with Nvidia for the world’s largest high-performance AI computer with 16,000 GPUs. And the company has partnered with Cohere, an AI startup that received some funding from Oracle as part of this month’s $270 million Series C round of funding, on a generative AI cloud service that protects enterprise customer training data privacy, Ellison said.

Specialized LLMs for customers are the future, he added. “A technology revolution is dawning,” he said.

Oracle Fourth-Quarter Numbers

Oracle revenue for the quarter reached $13.8 billion, up 18 percent year over year ignoring foreign exchange.

Total cloud revenue was $4.4 billion, up 55 percent year over year ignoring foreign exchange. Within that revenue, IaaS contributed $1.4 billion and SaaS contributed $3 billion. IaaS grew 77 percent year over year, and SaaS grew 47 percent.

Application subscription revenue and product support brought in $4.4 billion, up 37 percent year over year, Catz said. Strategic back-office SaaS apps have an annualized revenue of $6.6 billion, up 24 percent.

The Fusion Cloud ERP offering and the NetSuite Cloud ERP offering each brought in $700 million for the quarter. Fusion grew 28 percent year over year, and NetSuite grew 24 percent year over year.

“Together, our strategic back-office businesses are now larger and have grown faster than our local competitor for four straight years,” she said.

Infrastructure subscription revenue and support brought in $5 billion, up 15 percent year over year, Catz said. Infrastructure cloud services revenue had annualized revenue of $5.2 billion, up 89 percent year over year. OCI consumption revenue more than doubled, Cloud@Customer revenue grew 60 percent and Autonomous Database grew 47 percent.

Cloud services and license support revenue grew 25 percent during the quarter to $9.4 billion, according to Oracle. This segment was driven by strategic cloud applications, Autonomous Database and Gen 2 OCI, Catz said.

Cloud license and on-premises license revenue decreased 14 percent year over year during the quarter, bringing in $2.2 billion.

Oracle health-care systems subsidiary Cerner brought in $1.5 billion in revenue during the quarter.

Catz told analysts on the call that Oracle is still “at the beginning” or “the beginning of the middle at most” for optimizing Cerner’s business.

“Their margins are nowhere close to the way we run our company,” she said. “We’ve got a long way to go on just operationally, and we’ve got a lot of work going on on the development side as we bring our technical capabilities into the product and move them into the Oracle Cloud.”

The vendor reported $4.1 billion in operating income for the quarter using GAAP. GAAP net income was $3.3 billion. Oracle had about $10.2 billion in cash at the end of the quarter.

Oracle’s remaining performance obligation (RPO) was $67.9 billion, up 47 percent year over year. About half of that will become recognized revenue over the next 12 months, Catz said.

Capital expenditures were $1.9 billion to meet growing capacity needs, she said.

Oracle’s stock traded at about $121 after hours Monday, up about 4 percent from market close.

Full Fiscal Year 2023 Results

Oracle’s record $50 billion in revenue for the fiscal year was an increase of 22 percent year over year not factoring foreign exchange.

Of that revenue, $5.9 billion came from Cerner, according to Oracle. Oracle’s operating cash flow was $17.2 billion, up 80 percent year over year including foreign exchange. GAAP operating income reached $13.1 billion. Net income was $8.5 billion.

For the fiscal year, cloud services and license support revenues totaled $35.3 billion, up 21 percent year over year not factoring foreign exchange.

Cloud license and on-premises license revenue was $5.8 billion for the quarter, up 2 percent ignoring foreign exchange.

Capital expenditures for the year were $8.7 billion to meet growing customer demand, Catz said. She expects similar spending for the current fiscal year. Oracle has 42 public cloud regions worldwide, with seven under construction. Nine more dedicated regions are also planned.

Catz forecast total revenue growth for the current fiscal quarter between 7 percent and 9 percent ignoring foreign exchange rates. That includes Cerner revenue.

“We are seeing unprecedented demand for our cloud services and especially our AI services,” Catz said. “As a result, I expect cloud revenue excluding Cerner will continue growing at at least similar rates to what we experienced in fiscal 2023 even though our base is much bigger and may be higher. As our high growth cloud revenues are becoming a larger, larger portion of total revenue, we are seeing an acceleration of our total revenue growth. I expect this trend will continue in fiscal 2024.”