Ellison's healthcare obsession carries risks for Oracle
But if he swings it, the company can secure long term growth
Analysis As Oracle disappointed markets with its financial results last week, CTO and founder Larry Ellison made a big sell of a growth plan based around healthcare, a plan not without its drawbacks.
Big Red’s stock fell 4 percent after reporting its financial results for Q3, which showed revenue up 18 percent on a year earlier to hit $12.39 billion.
Despite growth remarkable for a company of Oracle’s size, this disappointed markets, which had been expecting revenue of $12.42 billion.
Fighting back on an investors’ call, Ellison made a big play of its inroads into healthcare markets, following the company’s $28.3 billion acquisition of health sector software specialist Cerner, which closed in June last year.
“While we are pleased with this early success of the Cerner business, we expect the signing of new health care contracts to accelerate over the next few quarters,” said Ellison, before going on to list 14 new contract wins or software implementations for electronic health records.
Included in the list was the Department of Veterans Affairs (VA), which Ellison said had deployed the company’s unified electronic health record system to 19 additional sites. It was unclear which time period he referred to, but the VA website records only four new implementations during 2022.
Perhaps it was not the project to boast about, because in December, the VA announced it would halt all planned implementations in the $16 billion scheme — signed off before Oracle took over Cerner — until June 2023 “to address challenges with the system and make sure it is functioning optimally for Veterans and for VA health care personnel,” a move which followed an earlier delay announced in March.
The Department for Veterans Affairs commands a $377 billion budget and runs 171 medical centres, providing healthcare for around 9 million veterans and their families. Last year, a Senate committee heard how the implementation of Oracle Cerner electronic health records system harmed nearly 150 patients at Mann-Grandstaff VA Medical Center in Spokane, Washington. In the hearing, Oracle said it had already fixed some of the problems and was working with the hospital to improve the system, which had been migrated to its cloud platform.
But last month, Republican Mike Bost, chairman of the House Committee on Veterans’ Affairs, introduced a bill requiring the VA and Oracle Cerner to "demonstrate significant improvements in the EHR system before installing it at additional medical centers," while a separate legislative proposal threatened to end the deal.
The Register has contacted Oracle for comment.
Ellison also mentioned Oracle was “bidding on a huge contract for the NHS” the UK’s health service with a budget stretching into hundreds of billions of dollars. The statement may relate to reports the software giant is bidding for the Federated Data Platform, a £480 million project for England’s health service which has already been delayed twice.
The cloud is another area where Oracle sees its best bet for growth. Its latest quarterly results show cloud infrastructure revenue of $1.2 billion, an increase of 55 percent on a year earlier and cloud applications (SaaS) revenue of $2.9 billion, up 42 percent.
However, the total cloud infrastructure market is worth something like $65 billion a quarter, growing at around 23 percent, according to figures from Canalys, making Oracles sales account for something like 2 percent of the market, well behind leaders Amazon Web Services, Microsoft and Google which collectively account for around for 63 percent of the market.
Holger Mueller, vice president and principal analyst of Constellation Research, said Oracle's plan was to offer a cloud for its applications and for the Oracle Database, which come with a lot of other workloads. “That is the ‘evil’ world domination plan. The question is: how and when can Oracle motivate these customers to move to OCI? But they are breathing down Google Cloud's neck, so it’s not too bad for Oracle.”
In managing the shift to the cloud Oracle must cope with a dip in profitability, as margins are lower than the lucrative support contracts that come with on-prem software. Nonetheless, investors see the cloud as a necessary future direction and one at least with predictable revenue.
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“Oracle may have been a little slow — like other tech vendors — at not pushing the cost break, but we will see cost base getting optimized in the next quarters,” Mueller predicted.
Meanwhile, Oracle’s big push into patient records software is accompanied by marketing HR and finance software to the same sector, according to Ellison.
Here the play is not so much about growth — although the market is growing — but about securing the long-term footprint for the Oracle database and cloud infrastructure. “Oracle wants to grow that share as they move to OCI – and that is enough growth. Basically, Cerner and the healthcare market allow Oracle to grow nicely for a decade. As long as they execute well and no competition shows up,” Mueller said. ®