Oracle

From CIA project to global corporation

"Data is the gold of the 21st century!" That may sound like a worn-out cliché, but it's pure reality. And the whole thing is by no means a modern phenomenon. Anyone who collected relevant data about their customers and used it efficiently has always been able to do good business. Just think of the bartender who always knew his regulars' favorite drinks. Today we're practically flooded with data and information. Experts estimate that more than 2,700,000,000,000,000,000 KB (2.7 zettabytes) of data already exist in the digital cosmos alone, and quite a lot more is added every day - and the trend is rising sharply!

These enormous amounts of data obviously need to be managed efficiently, and that's exactly the task the software company Oracle specializes in. Besides database management systems and infrastructure solutions, Oracle is also very well positioned when it comes to cloud applications and artificial intelligence. Reason enough to take a closer look at the company.

The history and business model of Oracle Corp.

Before I get to the origin story of the database architect Oracle, I'd like to briefly go into the history of data collection and data retrieval. OK, I don't want to go all the way back to the invention of writing or the first printing press. So let's start with the tabulating machine that Herman Hollerith developed and that was first used in the American census of 1890. This innovative machine could read data from punch cards that had been punched beforehand. By the way, this later grew into the tech giant IBM, which drove a number of further innovations. For example, toward the end of the 1960s, IBM engineers developed the floppy disk, among other things. This made data storage many times more efficient, but reading the data barely improved. Early computer databases worked sequentially. That means that with every search, the computer had to start at the beginning of the list and work its way through the data bit by bit. Of course, it quickly became clear that a new system was needed.

This is where Lawrence Joseph Ellison comes into play, who was born in New York City on August 17, 1944. Since his biological mother couldn't cope with him, Larry, as he was usually called, grew up with his great-aunt in Chicago. After finishing high school, he attended the University of Illinois and studied medicine. Despite outstanding performance, he dropped out without taking his final exams, because his adoptive mother had died shortly before. In 1966 he attended the University of Chicago, where he studied physics and mathematics and came into contact with computer science for the first time. Once again he didn't take any exams; instead he decided to move to California and work in the tech industry. So in the early 1970s he started working at the Ampex Corporation, where he worked on a database project for the CIA called "Oracle". However, the project had to be shut down a little later. But Larry saw a lot of potential in the project, which is why he talked his two colleagues Bob Miner and Ed Oates into founding the company Software Development Laboratories with him. The three of them had a lot of experience with database programs for government agencies, and eventually they persuaded the CIA to hand the abandoned 50,000-dollar project over to them.

While doing research, Larry came across an article by IBM engineer Edgar Frank Codd, in which he presented the relational database model. Thanks to its own computer language, Structured Query Language (SQL), this way of storing and retrieving data was much more efficient than all other models, yet IBM wasn't working intensively on this project. Larry and his team soon developed their own relational database management system (RDBMS) and brought it to market in 1979 (two years before IBM). They called it Oracle v2 because they believed customers would be reluctant to buy a first version. The marketing trick worked wonderfully, and the young company quickly became profitable. Because of the system's resounding success, the company renamed itself Oracle Systems Corporation in 1983 and began expanding internationally. Today, the Oracle Corporation is one of the highest-grossing software companies in the world. With its 133,000 employees, it's active in 175 countries and offers its 430,000 customers a range of different software and hardware solutions, cloud applications and services.

How can Oracle develop in the future?

First, I'd like to briefly sum up the business model again. Oracle is a multinational technology company that makes its money by developing, manufacturing and selling hardware and software products. Its revenue comes mainly from software subscriptions as well as license, hardware and service fees. Thanks to numerous acquisitions, Oracle can also offer its customers a number of complementary services in consulting, hosting, financing and training. In summary, you could say that Oracle sells various technologies at the enterprise level. Its customers come from a wide variety of industries - from the automotive industry to the communications sector, all the way to banks, utilities or government agencies.

Now let's take a look at the data from the most recently published quarter (Q1 2022 - ended August 31, 2021). Total revenue in this quarter came in at $9.7 billion, 4 percent higher than in the prior-year quarter. After deducting all expenses, net income was $2.5 billion (a 9 percent increase over Q1 2021). Broken down to individual shares, that corresponds to earnings of $0.86 per share, which in turn represents a 19 percent increase over the prior-year quarter.

Oracle is shifting its business focus more and more to the cloud. Compared to Amazon's AWS or Microsoft's Azure, it entered this field quite late, but it's investing very heavily right now. In the current fiscal year 2022, the company wants to spend around 4 billion US dollars on cloud integrations alone. Furthermore, unlike many of its competitors, Oracle offers end-to-end cloud solutions - from applications to the platform all the way to infrastructure. So this could give it a strong competitive advantage. Especially since you mustn't forget that Oracle can draw on a stable and established customer base.

Another topic that should make investors sit up and take notice is the strong share buyback program. In the last 10 years alone, the number of outstanding shares was reduced by more than 44 percent. Not quite as pleasing is the fact that the company partly had to take on debt to do so. I expect Oracle to slow down this buyback program over the next few years, as it will also need to invest more capital in the cloud business and other research. But the fact is that Oracle runs an investor-friendly, long-term-oriented business. You can see that, for example, in its steadily rising dividend.

Speaking of which, what about the dividend?

Just like many other technology companies, Oracle started paying a dividend quite late. Before that, it used its profits exclusively to drive its own research and development or to finance expensive acquisitions. Since 2009, Oracle has been sharing its success with its shareholders and at the same time began raising the dividend every year. Looking at the more meaningful period of 5 years, the average dividend growth rate is a decent 15.9 percent. The current dividend yield of 1.3 percent is just as respectable as the low payout ratio of 25.5 percent.

Conclusion:
Data is an enormously valuable raw material, and Oracle helps its business customers, among other things, to use this data better and more efficiently. I'm convinced that the software company's products and services will remain indispensable in the future as well. For this reason, I can only recommend that long-term investors take a closer look at Oracle.