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Larry Ellison explains why Oracle is building so many ‘cloud region’ data centers

Short answer: Demand for its cloud application and infrastructure services is rising even faster than expected.

By Chris Murphy | December 2020


Larry Ellison

After its surge of data center openings this year, Oracle now has 29 cloud regions worldwide and aims to have 38 by mid-2021, all providing a range of cloud infrastructure and application services. During Oracle’s FY21 second-quarter earnings call December 10, one analyst called that build-out “super impressive” but also asked the question: What’s behind all this capital expansion?

“We’re just seeing demand for our products all over the world,” Oracle Chairman and CTO Larry Ellison said.

Oracle has a huge installed base of customers, Ellison explained—some 430,000 companies, governments, and other organizations. As they move from running their own data centers on-premises to using cloud services, Oracle is putting what it calls cloud regions close to those customers. Having a cloud region nearby improves performance, and some customers also want their data to stay inside their own country, either because of regulation or preference.

“We believe we just have to get into more countries than Amazon, let’s say, because we have to serve those countries where we have a large installed base,” Ellison said. For example, Oracle recently established its first cloud regions in the UAE and Chile, and added additional ones in India, the US, and the UK.

In fact, Ellison explained that demand for its Oracle Cloud Infrastructure services grew so fast in the second quarter that Oracle couldn’t meet all of the capacity needs of a few of its largest customers.

“We have been building as fast as we can, but we’ve been trying not to build ahead of demand,” Ellison said. “And we were doing a pretty good job until this last quarter, where demand actually turned out to exceed our ambitions. …We have some large customers that just wanted more capacity than we could supply.”

CEO Safra Catz explained that Oracle will further increase its capital expenditures to meet customer demand. During the past six months, Oracle has already spent 37% more on capital expenditures than it did in the same period a year ago.

Cloud cover

Oracle’s large installed base of customers are moving various kinds of on-premises workloads to Oracle Cloud. Oracle Database customers are moving them to Oracle Autonomous Database and Oracle Exadata Cloud Service. Customers of Oracle E-Business Suite applications are shifting them to run on Oracle Cloud Infrastructure. And companies are replacing their Oracle and third-party on-premises finance, manufacturing, supply chain, HR, sales, marketing, and other applications with cloud native Oracle Fusion Cloud applications. (Read examples of brand new or expanded Oracle Cloud customer implementations.)

 

“We’re just seeing demand for our products all over the world.”

Oracle Chairman and CTO Larry Ellison

Oracle also offers Cloud@Customer options for organizations that want the many advantages of public cloud services but want them delivered from their own data centers. Oracle manages customers’ Cloud@Customer services in the same way it does any cloud service, except it places the underlying infrastructure on each customer’s premises.

Demand for all of those cloud services is on the rise. Oracle reported that its second-quarter cloud services and license support revenue rose 4% compared with the year-earlier quarter, to $7.1 billion—now representing 73% of total company revenue.

On the earnings call, Ellison offered a succinct summary answer to the analyst’s question about the company’s rapid cloud region expansion: “What are we doing? We’re going as fast as we possibly can.”

Safe Harbor Disclaimer: Statements in this article relating to Oracle’s future plans, expectations, beliefs, intentions, and prospects, including statements regarding future demand for Oracle’s cloud services, are “forward-looking statements” and are subject to material risks and uncertainties. Many factors could affect Oracle’s current expectations and actual results, and could cause actual results to differ materially. A discussion of such factors and other risks that affect Oracle’s business is contained in Oracle’s Securities and Exchange Commission (SEC) filings, including Oracle’s most recent reports on Form 10-K and Form 10-Q under the heading “Risk Factors.” These filings are available on the SEC’s website or on Oracle’s website at http://www.oracle.com/investor. All information in this article is current as of December 11, 2020, and Oracle undertakes no duty to update any statement in light of new information or future events.

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Photograph: Oracle

Chris Murphy

Chris Murphy

Chris Murphy is editorial director at Oracle. He was previously editor of InformationWeek. You can follow him on Twitter @murph_cj.