Oracle (NYSE:ORCL) has launched its new in-memory application to enable organizations to reduce corporate costs and accelerate download of time-consuming workloads. The product makes flash memories and network fabrics to run 10-20 times faster than commodity hardware. In this article, I will explain why the product will enable Oracle to continue its upward momentum and reward investors along the way.
Why will Oracle achieve sales growth with the new in-memory application? Market analysts predict that in-memory computing will bring major disruptions in the IT industry in the next few years. Due to new technologies and increased demand, the market is slated to expand. According to a new study by Market Research Media, a respected firm, the market for the larger high performance computing solutions, which includes in-memory computing, will hit $220 billion within seven years. In other words, Oracle will benefit since its new product is in a growth sector.
Oracle reported that hardware sales, which include in-memory products, recorded a revenue of $671 million in 2013's third quarter. Without the impact of currency conversion, total revenues of Oracle would have been 1% higher. In-memory sales made Oracle's operating income increase by 1% to $3.3 billion. Earnings per share increased to $0.52, up 6% compared with the same period in 2012. Net income was unchanged at $2.5 billion.
"Our non-GAAP operating margin increased to a quarter three record of 47%, and we expect it to reach an all-time high for the fiscal year," said Oracle's president and CFO, Safra Catz. "Both operating cash flow and free cash flow were at record levels for a quarter three, with operating cash flow of $13.7 billion over the last twelve months."
The company, in its 2013 second-quarter report, announced that hardware systems generated a revenue of $734 million. In-memory products helped revenues to grow by 3% to $9.1 billion. Operating income was up by 12% to $3.1 billion. Net income grew by 18% to $2.6 billion, while earnings per share were $0.53, up 24% compared with 2012. Operating cash flow was $13.5 billion on trailing twelve-month period.
"New software license sales and cloud subscriptions grew 18% in constant currency," said Catz. "Strong organic growth in our software business coupled with a focus on the highly profitable engineered systems segment of our hardware business enabled a Q2 non-GAAP operating margin of 47%."
Oracle's In-memory Computing products
Oracle has a number of in-memory products in the market. TimesTen In-Memory Database is an application that's created to work in the application tier and collects information in main memory. Oracle In-Memory Database Cache delivers a real-time cache for Oracle data. Oracle's Exalytics In-Memory Machine ensures high-quality performance planning for organizations.
The just-released in-memory applications will transform batch processing to real time and cut down response time in a significant way. Businesses can quickly spot areas of growth and make smarter choices. Executive can analyze in near real-time to generate ideas to solve critical organizational problems.
"Oracle continues to demonstrate its commitment to innovation that produces business results and values for Oracle applications running on Oracle engineered systems," said Steve Miranda, Oracle's executive vice president of application development. "The release of Oracle In-Memory Applications will help organizations not only complete load runs faster, but also discover new insights for efficiencies that would have been previously overlooked."
The in-memory applications are important for Oracle in 2013. Fortunately, their use in consumer devices, entertainment equipment, and other embedded IT systems is predicted to show explosive growth. Consequently, Oracle will gain a head start over its rivals with the products.
When we relate Oracle's hardware sales to its recent reports, we saw great sales figures. It is clear that the company is operating profitably, so it can be said that Oracle is carrying out its business activities with efficiency.
So how is Oracle performing in relation to rivals? With a gross margin of 80.84%, compared with 73.51% for SAP AG (NYSE:SAP) and 22.32% for Hewlett-Packard (NYSE:HPQ), price to earnings of 15.07, compared with 24.50 for SAP AG, and EPS of 2.15, compared with -6.55 for Hewlett-Packard, Oracle is doing better than the others. SAP AG's High Performance Analytic Appliance (HANA) will provide competition to Oracle's new products. But it is 10-20 times slower in transforming batch processing to real time. Hewlett Packard recently introduced Center for Excellence, an in-memory device that helps organizations to leverage real-time data to enhance their operations. But it is still not as fast as Oracle's new product in driving performance. Based on the price multiples of the three rivals and the strength of their in-memory applications, it is clear that Hewlett-Packard and SAP AG are not doing as well as Oracle.
Looking at the performance of Oracle's hardware products in the recent financial reports and the growth prospects of in-memory applications in the next few years, we can say Oracle's new product will improve the company's price multiples. In conclusion, Oracle is a good buy at the moment.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.