Oracle Plans To Ride ERP And Database To Greater Cloud Glory

Autonomous Database is ‘on its way to being the most-successful new product introduction in our company's history,’ Oracle Executive Chairman and CTO Larry Ellison says.

Oracle Executive Chairman and CTO Larry Ellison told investors the company expects to thoroughly dominate the ERP and database markets in the coming years, and it will leverage those advantages to spur its entire portfolio of business applications and cloud infrastructure services.

ERP and Autonomous Database are the two products that will "determine Oracle's future in cloud," Ellison said in the second-quarter earnings call for fiscal year 2020.

The tech giant will aggressively press that strategy with Safra Catz as its sole CEO, Ellison said, as Oracle has decided not to hire a second chief executive to fill the vacancy left when Mark Hurd died in October.

"How's our search going for a second CEO," Ellison repeated an analyst's question. "We don't have one. We have no plans for a second CEO."

[Related: How Much Are Oracle's Top Execs Paid?]

Oracle notched $9.6 billion in revenue for the quarter that ended Nov. 30—a year-over-year gain of less than 1 percent in constant currency, Catz told investors.

Cloud services and license support accounted for $6.8 billion of that amount, growing 4 percent from the previous year in mostly subscription sales. At the same time, cloud and on-premises license sales were down 7 percent to $1.1 billion.

The opposing trendlines of those two segments illustrate the shift of customers from licensing to cloud deals, Catz explained, with services now accounting for more than 70 percent of Oracle's total revenue.

Commanding the ERP and database markets will further shift Oracle's business in that direction and drive the success of adjacent cloud applications across its large portfolio, as well as its second-generation IaaS, Ellison said.

Oracle's Fusion and NetSuite offerings have established a major lead for Oracle over cloud-based ERP competitors, he told investors. And an "integrated suite strategy" is redounding that success to its HCM solution, as well as CX and Marketing clouds.

The next-largest ERP vendor, Workday, only has a few hundred customers, and its "lack of success in cloud ERP is creating opportunities for Oracle," Ellison said.

But the "gigantic opportunity" in the market comes in poaching SAP customers, Ellison told investors.

"SAP never rewrote their ERP applications for the cloud," Ellison said. "As a result, SAP's install base is very vulnerable."

Oracle is already moving many midsize SAP customers to Fusion. And some of the German software giant's largest customers, including many in the heart of Germany, "are already working with us to develop plans to migrate to Fusion ERP," Ellison said.

Oracle's cloud ERP business is growing faster than 30 percent. But with SAP customers recognizing Oracle provides a "safe and compelling alternative to SAP old technology," Oracle can blow well past that growth rate.

"SAP's customer base is up for grabs," he said.

As to its longest-standing business, Ellison said, "we expect to hold onto our database franchise in a big way." Oracle is dominant on-premises and has "very strong" database share in the cloud.

But with the ramping adoption of its autonomous service, Oracle expects to win "overwhelming market share" on-premises and in the cloud, he said.

The database in which "robots configure the system" to minimize human errors is gaining traction faster than any product Oracle's executive can remember, Ellison said.

"It's on its way to being the most-successful new product introduction in our company's history," he said.

Building on a small base, Autonomous Database revenue has grown faster than 200 percent, he said. But it's hard to offer growth predictions to investors as Oracle only has four quarters of data points since the product hit market.

Early adopters now number in the thousands, Ellison said, and sales should ramp significantly over the coming months as Oracle rolls out the self-configuring database in a Cloud@Customer option—a deployment model through which the service is installed on an Exadata machine behind the customer's firewall.

Ellison envisions the Autonomous Database, deployed either in Oracle's cloud or in the on-premises variety, "will replace everything else" and eventually consume its entire install base.

It takes a while to ship next-gen products, he said, but "none of us have ever seen an adoption rate like this before."

Ellison said the only other product he can compare to Autonomous Database is the original Oracle commercial relational database that launched the entire business.

Ellison also took his shots at Amazon Web Services, saying Oracle's databases are "ten times faster than anything Amazon has."

"That means were much cheaper than anything Amazon has. Much safer, much easier to use," he added.

And Oracle's on-prem solutions are readily available, compared to all its competitors who "are trying to create these outposts," he said, seeming alluding to the AWS Outposts service that the cloud giant just started rolling out.

To provide the infrastructure on which it will scale those services, Oracle is building out facilities hosting its Gen2 cloud at a rapid clip. The company will have achieved a notable competitive milestone within one year, Ellison promised.

By the end of 2020, "I'll be able to say we have more Gen2 datacenters in more countries than Amazon has datacenters period."

While Oracle beat FactSet analyst expectations by one cent in posting 90 cents earnings-per-share in non-GAAP metrics, it fell short on revenue predictions.

That led the stock to fall after-hours from a Thursday close of $56.47 to $55.05 at the time of this publication.

Catz started the earnings call by thanking everyone who expressed condolences when Hurd died.

"They mean a lot to us," said the Oracle CEO.

When asked about finding another co-CEO, she deferred to Ellison, who quickly shot down the idea.

Ellison noted that people thought it was odd when the company first decided to go with two CEOs in 2014 after he stepped down from the position. Now they think it's odd to just have one.

But the decision to split the top job a few years ago was the result of an usually good working relationship between Hurd and Catz.

Oracle will continue to expand its management team, Ellison said, "but one of the strategies is to not hire a second CEO.

The search for another leader will be put on hold until "both Safra and I retire," he said, "which is not any time soon."