By Jay Greene
Oracle Corp racked up rapid sales growth in its cloud-computing business in its second quarter, but the cloud business recently predicted by executive chairman Larry Ellison to displace industry leader Amazon.com Inc. posted only modest gains.
Separate from Oracle's disclosure of quarterly results, President-elect Donald J. Trump named Oracle co-CEO Safra Catz to the executive committee of his transition team Thursday. Ms. Catz, who will continue to work at Oracle, was part of a meeting Wednesday with Mr. Trump, members of his team and technology executives from some of Silicon Valley's biggest companies. Federal government contracts account for no more than 5% of Oracle's revenue, according to an estimate by Stifel Nicolaus & Co. analyst Brad Reback.
The Redwood City, Calif., maker of business software reported big gains in the cloud-computing businesses of selling on-demand access to web-based applications, known as software as a service, and selling access to online tools to build and manage apps as well as analyze data, called platform as a service. Combined, Oracle's sales in those markets jumped 81% year on year to $878 million.
But in the market of providing on-demand computing power and data storage, known as infrastructure as a service, Oracle generated just $175 million in sales in the quarter, a 6% gain. That business is dominated by Amazon Web Services.
At the Oracle OpenWorld conference in September, Mr. Ellison introduced a raft of new infrastructure services and predicted that "Amazon's lead is over."
The second quarter results suggest that Oracle hasn't gained much ground yet. In its most recent quarter, sales at Amazon's cloud-computing unit, which are largely in the infrastructure market, grew 55% to $3.23 billion.
"We think it will be very difficult for Oracle to catch Amazon," said Mr. Reback.
In a conference call with investment analysts, Mr. Ellison said of Oracle's offering that it is "early days, but it's being very, very well received."
Mr. Reback said the company's gains in its bigger cloud-computing businesses show that it is making progress in the shift from selling licenses for software that companies run on their own computers to selling subscription to web-based services. In the latest quarter, Oracle's total cloud revenue rose 62% to $1.1 billion.
Those gains are offsetting contraction in the company's conventional software licensing business, where new software license sales brought in $1.3 billion in the quarter, down 20%. The company's total on-premises software business, which includes sales of updates and support, amounted to $6.1 billion, down 4%.
"The increase in revenue from our cloud business is starting to overtake our new software license business decline," Ms. Catz said during a conference call with financial analysts. "Our cloud revenue will be larger than our new software license revenue next fiscal year when the transition will be largely complete."
Like many major cloud-computing providers, Oracle is pumping money into massive data centers required to handle its customers' computing needs in the cloud. In the latest quarter, Oracle spent $1.06 billion on capital expenditures, up 65% from the year-earlier period. Operating margin came in at 34%, up from to 33% a year ago.
For the period ended Nov. 30, Oracle reported a profit of $2.03 billion, or 48 cents a share, down from $2.2 billion, or 51 cents a share, on a diluted basis, a year earlier. Excluding stock-based compensation and other items, per-share earnings were 61 cents.
Quarterly revenue grew 0.5% to $9.04 billion.
Analysts expected Oracle to earn 60 cents a share on an adjusted basis, on sales of $9.11 billion, according to an average of estimates gathered by Thomson Reuters.
Shares fell 1.9% to $40.10 in after-hours trading.
Write to Jay Greene at Jay.Greene@wsj.com
(END) Dow Jones Newswires
December 15, 2016 18:55 ET (23:55 GMT)
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