Oracle Corp.’s cloud-services revenue slowed for the second consecutive quarter, hitting a sharper speed bump Monday, just as it plans to embark on a potentially risky move of adding a large number of data centers.
The software giant said in its earnings conference call with analysts that it is currently building 100 new data centers, in addition to expanding its 66 current data centers, because it has “billions of dollars more in contracted demand than we currently can supply.”
“We think we can build a lot of these data centers very quickly,” said Oracle
ORCL,
co-founder and Vice Chairman Larry Ellison, adding that the demand for more data centers is not just for running generative AI. “There’s huge, pent-up cloud database demand. There’s huge demand overseas for sovereign cloud where governments haven’t been able to move their workloads. A lot of those are government Oracle workloads.”
But Oracle’s ambitious push comes as it sees further slowing in its cloud revenue. In that unit, which includes both infrastructure-as-a-service and software-as-a-service, Oracle said revenue grew 25% to $4.8 billion, a deceleration from 30% growth in the first quarter and down from 54% growth in the fiscal fourth quarter. That excludes its Cerner healthcare business.
Oracle forecast that its cloud growth will slightly reaccelerate in the next quarter, excluding Cerner, to a growth rate of between 26% and 28%.
One analyst asked about the potential impact to Oracle’s margins, amid the startup costs and increased capital spending, and expected downtime before revenue starts from new data-center additions. But both Ellison and Oracle Chief Executive Safra Catz touted the company’s ability to start up its data centers — which have many autonomous features — quickly.
“We have a very different model than our old data centers or our competitors’ data centers,” Ellison said. “We can run these things, we can bring them up relatively quickly, and we can run them very inexpensively and efficiently.”
Investors appeared to be disappointed with the slowing growth in Oracle’s cloud business, and were also likely nervous about the big push in its data-center plans. Its shares fell 9% in after-hours trading. Executives, though, insisted that if Oracle had had more capacity this quarter, there were “hundreds of millions of dollars more” in revenue that it would have been able to recognize.
On top of that, Oracle’s Cerner healthcare acquisition has continued to drag on its revenue growth, and is expected to continue to do so for the rest of the fiscal year. Catz said it will begin to grow next fiscal year. “We expect Cerner to be a growth story,” she said.
So even as Oracle has managed to solidify its position as the fourth cloud-services provider, investors will remain nervous about its spending, just as its growth is slowing. The law of large numbers is also catching up to the software giant, as it is seeing a growth deceleration other cloud rivals have also experienced. But investors will expect the company to fill up those data centers as fast as they say they can, so the onus is on Oracle.
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