Here’s Oracle’s New Cloud Computing Strategy

Even though the business software maker Oracle (NASDAQ:ORCL) reported a decline in revenue in its quarterly report released Thursday, its shares rose more than two percent by the stock market’s close.

While the company’s report showed earnings of 53 cents per share for the fiscal first quarter, which matched Wall Street’s projections and sent stock prices up, Oracles’ $8.2 billion quarterly revenue missed analysts’ expectations by $200 million. The discrepancy was prompted by the Oracle’s continuing transition from computer hardware manufacturing to cloud-computing services.

Oracle’s recent acquisition of the software firm Taleo and the customer support company RightNow illustrates its evolution. Oracle has long been manufacturer of software that runs internally on a company’s computer hardware, but hardware sales are down by more than 20 percent.

Declining hardware sales, however, were not unexpected. Intel (NASDAQ:INTC) faces a similar problem, as does Hewlett-Packard (NYSE:HPQ). The software company’s $7.3 billion acquisition of hardware manufacturer Sun Microsystems in 2010 has compounded the struggle for profitability and Chief executive officer of the company, Larry Ellison, has said in the past that the company will let the lower-performing portions of the hard business fade away.

Originally, cloud computing posed a threat to Oracle’s traditional form of licensing software to be installed on individual machines, but the company has now entered the business of cloud software, which runs in remote data centers and is usually sold on a subscription basis. Cloud computing has been redefined as “software-as-a-service.” Of its first quarter revenue, Oracle gained $222 million from cloud-subscriptions, growing 5 percent over last year.

In a statement following the release of the company’s quarterly report, Ellison said that more cloud announcements are expected at Oracle’s annual OpenWorld conference in San Francisco next month.