How Oracle Corporation (ORCL) Plans to Improve Its Top Line Performance

Tech giant Oracle Corporation (NYSE:ORCL) , which just beat expectations by increasing its quarterly revenue 2% to $9.3 billion, is well-known for offering best-in-class solutions in the software world. From hardware to cloud solutions, Oracle Corporation (NYSE:ORCL) is present in practically every segment of the tech world, where it takes advantage of its expertise in database technology to cross-sell a wide variety of solutions to Fortune 500 companies.

However, as competition from cloud players such as Salesforce.com, inc. (NYSE:CRM) and Workday Inc (NYSE:WDAY) increases, Oracle Corporation (NYSE:ORCL) could find it very challenging to continue growing its top line. Revenue between 2012 and 2013 barely increased.To boost sales, a reorganization of the U.S. Salesforce.com, inc. (NYSE:CRM) may be on its way, according to JMP Securities analyst Pat Walravens. Will this change be enough for Oracle Corporation (NYSE:ORCL) to improve top line? More important, what other choices does Oracle Corporation (NYSE:ORCL) have in order to return to a high-growth path?

Source: Oracle Investor Relations, Annual shareholder meeting

Reorganization?

To improve the company’s top line, Oracle Corporation (NYSE:ORCL)’s president Mark Hurd, who joined the firm three years ago, may have been overhauling the Salesforce.com, inc. (NYSE:CRM) for more than two years, according to Business Insider.

Note that there are plenty of stories about some of Oracle Corporation (NYSE:ORCL)’s most successful salespeople quitting because they disliked the new atmosphere, which according to one salesperson interviewed by Business Insider, included some controversial measures, such as limiting the sales territory to less than 20 square miles of a metropolitan area. In the past twelve months, 17-year veteran Tony Fernicola, Oracle Corporation (NYSE:ORCL)’s former head of North American sales Keith Block, and 17-year veteran Dave Rey, all left Oracle Corporation (NYSE:ORCL) to join Salesforce.com.

What Oracle Corporation (NYSE:ORCL) really needs

The company, which has a thousands-strong Salesforce.com, inc. (NYSE:CRM), may not be in urgent need of a reorganization. Rapid sales growth for key products, such as Exadata –a new database machine engineered to be the highest performing platform for running Oracle Corporation (NYSE:ORCL) databases– shows the company’s execution power remains strong. And Oracle Corporation (NYSE:ORCL) just had its first recent beat-the-street quarter this week, after three whiffs in a row.

What investors need to remember is that Oracle Corporation (NYSE:ORCL) is still facing a business-model transition. As Morningstar analyst Rick Summer notes, the company is still trying to adapt its products to a new subscription model. Moreover, there are plenty of customers who still rely on Oracle Corporation (NYSE:ORCL)’s legacy solutions to operate, and need to migrate to cloud solutions. The company needs to manage this transition successfully.

Managing the transition

The current strategy involves extending support of legacy applications, and at the same time help customers with the transition from legacy to cloud solutions. This should help the company to retain traditional customers that are not interested in cloud solutions, such as banks and international organizations, and at the same time recapture market share from Salesforce.com, inc. (NYSE:CRM) and Workday Inc (NYSE:WDAY), which are particularly popular among mid-size enterprises.

Recapturing share market from cloud players

The market for cloud solutions is growing at an amazing speed. Only the infrastructure as a service segment is expected to reach over $24 billion in revenue by 2016.

In the cloud-based software segment, Salesforce.com, inc. (NYSE:CRM) – the largest provider of customer relationship management software based on the public cloud — has managed to capture significant market share from Oracle Corporation (NYSE:ORCL), by focusing on customers looking to cut IT costs. Due to its cloud focus, as much as 94% of Salesforce.com, inc. (NYSE:CRM)’s total revenue comes from subscriptions, and therefore it is recurrent.

Workday Inc (NYSE:WDAY), on the other hand, just generated almost $130 million in revenue for the third quarter — up 76% on the year before — by focusing on providing affordable, global cloud-based applications for human capital and financial management. The company recently announced a deeper relationship with Salesforce.com, inc. (NYSE:CRM), involving the integration of Workday Inc (NYSE:WDAY)’s human customer management and other applications to Salesforce.com, inc. (NYSE:CRM) Sales, Service and Marketing clouds.

To recapture market share, Oracle Corporation (NYSE:ORCL) has designed a strategy that addresses every segment of the cloud market. For example, in terms of software as a service, the company’s main advantage is that, unlike Salesforce.com, inc. (NYSE:CRM), all of its applications are built on the Oracle Corporation (NYSE:ORCL) Database, a state-of-the-art secure database platform.

On the infrastructure front, the company plans to be price competitive against Amazon.com, Inc. (NASDAQ:AMZN) and Microsoft Azure, and at the same time focus on differentiation, which should improve margins in the long run. The company already has a competitive pay-as-you-go monthly pricing model in motion, and has successfully developed some star products, like the Oracle Corporation (NYSE:ORCL) SuperCluster T5-8, a system designed for database and enterprise applications based on the world’s fastest database server, and the world’s fastest processor, delivering a 10x better price/performance than a comparable International Business Machines Corp. (NYSE:IBM) solution.

Final Foolish takeaway

Oracle Corporation (NYSE:ORCL) does not need a Salesforce.com, inc. (NYSE:CRM) reorganization process. The company’s execution power remains strong, as evidenced by the latest quarter results.

Investors should remember the company is still facing a business transition process. Oracle Corporation (NYSE:ORCL) needs to provide traditional customers with enough legacy support, and at the same time sell its cloud solutions to more price-sensitive clients. In this context, the company’s current business focus and cloud strategy appear to be on the right track.

The article How Oracle Plans to Improve Its Top Line Performance originally appeared on Fool.com.

Adrian Campos has no position in any stocks mentioned. The Motley Fool owns shares of Oracle Corporation (NYSE:ORCL).. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

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Tags: Amazon.com Inc. (NASDAQ:AMZN), International Business Machines Corp. (NYSE:IBM), Oracle Corporation (NYSE:ORCL), Salesforce.com Inc .(NYSE:CRM), Workday Inc (NYSE

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