Hartadianata Harianto Aki - Yoshida Sai Revanuru
SWOT Analysis for Oracle
Oracle has four key strengths as a business, geographic diversity, Industry leading services and products, high margins, and an ability to generate significant cash flows. First, Oracle’s revenues do not solely come from the US market. Although 53% of revenues stem from the US, 31% and 16% come from the EMEA and Asia Pacific regions respectively. Second, the company has industry leading end-to-end IT solutions. Oracle has a substantial amount of products and services, including database and middleware software, application software, cloud infrastructure, hardware systems and data analytics. Combined, all of these enable Oracle to provide an ecosystem of IT solutions to its clients. Third, Oracle has good margins due to its prepackaged software products. Margins for Software and Cloud, which is equal to 75% of revenues, have 25% margins in 2014. Finally, the company is a cash generating machine. In 2014, Oracle had an operating cash flow of more than $15 billion. Creating such large cash flows benefits Oracle in several ways. Most importantly, it allows the company to continue to spend large amount of R&D. In 2014, Oracle spent more than 12% of its sales on developing future innovations and products. Furthermore, large cash inflows allow the company to finance its growth-by-acquisition strategy, a key part of delivering returns to shareholders Weaknesses
Despite being an industry leader in the software space, Oracle has some inherent weaknesses in it’s business model. Most importantly, Oracle faces acquisition integration risk from its growth-by-acquisition strategy. Despite having one of the largest R&D budgets out of all of its competitors, Oracle grows by purchasing smaller companies. While this can be an effective strategy, often times expected synergies do not emerge. Furthermore, investors may not agree with certain acquisitions and a stock price drop may ensue. For example, in 2010 Oracle acquired Sun Microsystems, for $7.4 billion and its stock price dropped as a result. Since Oracle grows by acquisitions, it’s inorganic growth has been weak. It’s core on-site database and enterprise software divisions have grown less than 3% over the past three years. Another key weakness is that its traditionally strong margins have been decreasing over the past three years. Although margins remain high for the industry, cloud computing has impacted them negatively. With the emergence of cloud computing, Oracle has been moving away from traditional licensing based revenue to subscription based. Smaller firms (like salesforce) now provide similar software products that cost substantially less. Subscription based software services also have lower switching costs, which exacerbates the problem. Finally, Oracle has recently had a major change in management. On September 18th Larry Ellison, the Co-founder and CEO, stepped down to the CTO position and was replaced by Mark Hurd and Safra Catz. Opportunities
Opportunities abound in the software industry, especially in Cloud computing and Big Data. Cloud services include SaaS, PaaS, and IaaS, are expected to grow by 29%, 41% and 37% annually over the next five years. Oracle has been aggressive in acquiring companies is these areas, including major purchases such as Responsys, Blukai, Acme Packet, and Tekelec. Big Data is another high growth prospect, and Oracle has been working on developing data mining software for its eco system. Finally, emerging markets will begin to become more important geographic areas as EM companies begin to develop sophistication. In particular, cheaper Cloud services will allow EM companies to get access to software at lower, subscription-based rates Threats
Oracle faces a key threats in the form of nimbler competitors and Cloud based services. Despite having substantial cloud offerings, Oracle has had...
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