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Oracle results beat the cloud naysayers, at least for one quarter

The Exchange
America's third richest man Larry Ellison sat down with Charlie Rose in a wide ranging and revealing interview. The Oracle CEO opened up about Google and his relationship with late Apple founder Steve Jobs.

Oracle (ORCL) investors partied a day after the database giant released its fiscal second quarter earnings showing big gains for cloud services and some high-end hardware. Shares of Larry Ellison’s baby jumped 6%, surpassing not just the 52-week high from back to March but the May, 2011, post-Internet bubble high as well.

On the surface, Oracle’s overall results were nothing to get so excited about, with revenue up 2% and net income declining 1%. The results just slightly exceeded what analysts expected.

So why the big move in the stock?

Oracle and a few similarly situated big tech stocks like IBM (IBM), Cisco (CSCO) and Microsoft (MSFT) are caught in a battle of investor expectations. Critics and short sellers argue that the shifts to cloud computing and mobile devices are eviscerating the lumbering giants. Backers maintain the companies are successfully, if slowly, responding.

Oracle was able to fuel the bullish case this time around, with evidence that some of its newer businesses could grow quickly enough to offset declines in increasingly outmoded software and gear lines.

On the software side, Oracle reported that bookings for its cloud services rose 35%. "We decided that we were really going to lean in to the cloud to get market share," Oracle President Safra Catz noted on a call with analysts on Wednesday. Actual revenue from cloud-related services rose 20%.

On the hardware side, where the popularity of cloud services has reduced demand for companies buying their own servers, Oracle showed some of its cutting-edge products still have appeal. Sales of the Exadata line, a specialized server for running Oracle software, rose at double-digit rates, while Sparc Superclusters, huge integrated boxes for data centers, at triple-digit rates, the company said without giving specific numbers.

Still, sales of much of the rest of the line-up are plummeting. And while total hardware sales slipped just 3% from the prior year, they’re down 25% from fiscal 2012 and almost 40% from 2011.

So even for Oracle’s biggest fans, it’s too early to declare victory.

Oracle’s share of the server market dropped to just 4.1% in the calendar third quarter, according to IDC data. And pure cloud service providers like Salesforce.com (CRM) and Workday (WDAY) continue to steal away Oracle customers. Workday, started by executives who left Peoplesoft after Oracle purchased it in 2005, reported a 76% increase in revenue in its most recent quarter. Salesforce revenue increased 36%.

If it’s going to survive and thrive under the onslaught from new players, Oracle needs to turn those increased bookings into increased revenue.