Oracle announced its revenue for the second quarter (as of November 30) and revenue guidance for the next quarter on Monday (December 11) local time. Due to lower than expected revenue performance, the company's stock price fell more than 9% in after hours trading on Monday.
Oracle's adjusted earnings per share for the second quarter were $1.34, with an expected $1.33; The adjusted revenue for the second quarter was $12.94 billion, a year-on-year increase of 4% based on fixed exchange rates, which was lower than the analyst's expected $13.05 billion.
For this financial performance, fierce competition in the cloud computing market and uncertainty in the economic environment are undoubtedly the main factors, which have suppressed market demand for its cloud products.
In addition, American investment bank D A. Gil Luria, a research analyst at Davidson, commented that the Cerner business acquired by Oracle last year and the sustained sluggish corporate spending have caused a significant drag on performance. It is reported that Oracle's healthcare division includes medical IT giant Cerner, which was acquired for $28 billion last year.
Oracle CEO Safra Catz also pointed out that total revenue, including the Cerner business, increased by 4% in the second quarter, while total revenue excluding Cerner increased by 6%.
Weak cloud business
This company is focusing on expanding its cloud infrastructure to compete more effectively with Amazon, Microsoft, and Google. However, this measure was hindered in the previous quarter, after a report from the first quarter showed that after more than a year of accelerated growth, its cloud infrastructure growth slowed down for the first time.
In terms of business segmentation, the company's revenue performance for various businesses in the second quarter was also unsatisfactory.
In the second quarter, Oracle's revenue from cloud services and licensing support departments totaled $9.64 billion, an increase of 12%, lower than analysts' expectations of $9.71 billion.
Revenue from cloud computing and local deployment licenses decreased by 18% to $1.18 billion, slightly lower than analyst forecasts of $1.21 billion.
The revenue of the service industry decreased by 2% year-on-year to $1.37 billion, also lower than the expected $1.44 billion.
The revenue of cloud computing services increased by 25% year-on-year to 4.775 billion US dollars, which is lower than the 30% growth rate of the previous quarter; Cloud infrastructure revenue reached 1.6 billion US dollars, an increase of 52%, lower than the 66% growth rate in the previous quarter.
Oracle CEO Katz said in a conference call, "Our production capacity did not reach the level we should have achieved in the previous quarter."
She pointed out that the company must make a choice between two options: one is to build small-scale facilities and ensure revenue in the current quarter; The second is to continue building larger facilities and wait for production capacity to become available.
At present, Oracle's cloud clients include Musk's artificial intelligence startup xAI, oilfield service provider Halliburton, and South Korean giant Samsung.
Oracle co-founder Larry Ellison stated in a conference call with analysts that the number of artificial intelligence chips Musk wants far exceeds Oracle's supply capacity. At present, chip manufacturers have been working hard to solve the shortage problem, and market leader Nvidia's graphics processing units (GPUs) have also been in short supply.
Financial forecast falls short of expectations
In terms of financial forecasting, Oracle expects revenue growth in the current third quarter (including Cerner business) to be between 6% and 8%, with the median lower than the average analyst estimate of about 7.6% growth.
As more companies shift towards adopting generative artificial intelligence, Oracle has been striving to strengthen its artificial intelligence infrastructure. However, the current market leaders Amazon and Microsoft continue to dominate the market.
Larger participants have made significant progress in the artificial intelligence ecosystem, limiting Oracle's chances of gaining a significant market share.
In addition, stubborn inflation and high borrowing costs have forced businesses to cut expenses, harming companies like Oracle that rely on corporate spending.
However, Oracle CEO Katz has always been optimistic, stating, "The demand for our cloud infrastructure and generative artificial intelligence services is growing at an astronomical rate... Our cloud business currently has an annual revenue of nearly $20 billion, and the demand for cloud services continues to grow at levels not seen before."
Oracle Chairman and co-founder Ellison said, "Oracle is expanding its existing 66 cloud data centers and building 100 new cloud data centers to meet growing demand... In the coming months, we will launch 20 new Oracle cloud data centers."