Oracle Forecast: Very Cloudy (in a Good Way)

NEW YORK (TheStreet) -- Last week, there were many who quick to count out Oracle (ORCL) after the database giant reported disappointing fiscal fourth-quarter earnings results, which sent its stock plummeting 9%.

Oracle's miss came as a surprise. The company's fourth quarter had previously been referred to as the "magic of May." The company had posted performance that was consistently solid. This time was different. Even more disappointing, it was the company's second consecutive miss.

I'm not going to deny that Oracle's results were not up to the company's usual standards. But Oracle's management didn't try to pretend as if the quarter was more than it was. Nor did management show any signs of panic, having seen it coming. What was also clear during the conference call was that management sees the future and still has a solid pulse on this company's direction.

Last year, Larry Ellison, Oracle's CEO, first offered a glimpse of Oracle's cloud direction when he spoke at Oracle's OpenWorld Conference in San Francisco. In that hour-long keynote, Ellison announced four key initiatives to strengthen Oracle's SaaS (software as a service) position against the likes of SAP ( SAP) and Salesforce.com ( CRM).

One of the key products announced last September was Oracle's new database software called "12c." ("c" is for "cloud"). During last Thursday's fourth-quarter earnings conference call, Ellison made the following remarks:

"Next week, we will be announcing technology partnerships with the largest and most important SaaS companies and infrastructure companies in the cloud. And they will be committing to our technology for years to come."

I can only speculate if Ellison was referring to 12c -- I believe he was -- even though he did not specifically mention it with respect to the announcements.

He also said:

"We think 12c will be the foundation of a modern cloud where you get multi-tenant applications with a high degree of security and a high degree of efficiency, you at least have to sacrifice one for the other."

For those who are unfamiliar, Oracle describes 12c as a complete cloud lifecycle management solution that allows businesses to quickly set up, manage and support not only enterprise clouds but also traditional Oracle IT environments from applications to disk.

One of the key advantages of 12c is that it can operate in a multi-tenant environment, which means the software is able to function not only across several machines, but at different physical locations. In other words, 12c has the capability to make your network "cool."

Clearly, Oracle has made great strides in the cloud in a relatively short period of time and has shown impressive relative growth rates in the SaaS market. These past two quarters have nonetheless shown that the competition within this space from IBM ( IBM) and SAP ( SAP) is also very aggressive.

Oracle's ascent within the cloud is now being taken seriously. Accordingly, rivals have also begun to apply pressure. Oracle is responding with strategic partnerships with (among others) Microsoft ( MSFT) and Salesforce.com. Some are quick to suggest that Oracle is admitting defeat by partnering with its hated competition. I don't believe that to be the case.

I think it's a smart move. For that matter, pundits should also raise questions about the competition's need for Oracle's platform, in particular Salesforce.com. The SaaS market is moving at a rapid pace. Rivals are revealing they need Oracle's technology just as much as the notion that Oracle "needs" these partnerships.

What's more, to the extent that 12c can deliver on Ellison's promise and become "the foundation of a modern cloud," this changes not only Oracle's market position within the cloud but raises expectations for the company's long-term growth rates for revenue and free cash flow. And we haven't even discussed advancements with Oracle Fusion and Elastic Cloud.

The company still has more to say about its recent partnerships and the role that 12c will play in them. So, there are still plenty of unknowns.

What is known, however, is there are plenty of smart people at Oracle. While I understand that management's bravado has rubbed a lot of people the wrong way, it seems foolish to use this as motivation to bet against a company that has a chip on shoulder, and several more up its sleeve.

At the time of publication, the author held no position in any of the stocks mentioned.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.

Richard Saintvilus is a private investor with an information technology and engineering background and the founder and producer of the investor Web site Saint's Sense. He has been investing and trading for over 15 years. He employs conservative strategies in assessing equities and appraising value while minimizing downside risk. His decisions are based in part on management, growth prospects, return on equity and price-to-earnings as well as macroeconomic factors. He is an investor who seeks opportunities whether on the long or short side and believes in changing positions as information changes.

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