Oracle Wins a Quarter

NEW YORK (TheStreet) -- Oracle (ORCL) announced a winning quarter yesterday, beating sales estimates by $90 million and earnings estimates by 2 cents/share. 

This came just days after TheStreet reported on a tepid Morgan Stanley research report  that made the stock an early morning laggard. 

The stock is now trading around $36. Goldman Sachs has a $41/share price target on it. Our own analyst team re-affirmed a buy rating on the stock Monday.

What's happening?

As I've been reporting, the computing world has been rapidly moving away from what Oracle has long been selling, enterprise computing based on proprietary servers and databases, toward the cloud.

But what I and other analysts failed to perceive is that if the top of the cloud is "software as a service," an application delivered online, then Oracle's databases could still have enormous power to direct that cloud move.

Companies such as Salesforce.com  (CRM) and Netsuite  (N), which sell software as a service through Oracle hardware, have successfully marketed themselves to enterprises as "cloud." Those customers haven't looked behind the curtain to see that the hardware savings of true cloud -- commodity servers, standardized software -- aren't there.

There are savings in "faux cloud" and there is comfort in the same database system you've depended upon for a decade. Oracle has taken full advantage of this.

In his conference call to discuss the earnings, CEO Larry Ellison emphasized the success of "Fusion Cloud" applications for human resources, customer relations and enterprise planning. These are the "big three" of traditional enterprise applications.

Oracle's solutions are hosted versions of Oracle databases. They let customers do what they might otherwise do with a company like Salesforce.com, move jobs off their own hosted hardware into someone else's building. Oracle, in other words, is doing what it has been doing for years: competing with, and aiming to swallow up, those companies that build businesses on its software.

Hardware sales were up 2% for the quarter, but Ellision emphasized "engineered systems," essentially hardware that's pre-loaded with software, the kind of hardware that software sells. Things like the Oracle Virtual Compute Appliance, a Linux-based system keyed to virtualization or the Oracle Database Appliance, which is based on Oracle's database, are what's selling.

This doesn't mean Oracle has stopped the world or slowed the march to cloud. This doesn't mean Oracle doesn't still have the existential problem of having to sell proprietary hardware and software in an increasingly cloud-based world.

It means that, for now, it's controlling the pace of that move and controlling what its customers are doing within that realm.

Oracle represents the mainstream of the enterprise, those conservative computing managers who want incremental change, who don't want a revolution. There are more of these people than many thought.

But the problem remains. What's new -- what's really new -- remains commodity hardware, running virtual operating systems, addressed as one big system, scaled to infinity and beyond.

Oracle isn't there yet, but it's herding the customers under its control in that general direction. And it hopes that by the time they wake up to what real cloud can do it will be too late for them to ditch the proprietary products they bought in 2013, or will buy in 2014.

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

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

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