After spending about $6.7 billion on data center buildouts in 2022, Oracle is boosting that CapEx investment to about $10 billion this year to meet soaring demand for its cloud infrastructure services.
That massive increase in CapEx, disclosed by CEO Safra Catz on Oracle’s fiscal-Q2 earnings call late last year, underscores the booming status of the company’s Oracle Cloud Infrastructure (OCI) business and runs counter to the moderating growth that most other cloud providers are experiencing.
During the call, Catz said that for the 12 months ended Nov. 30, Oracle spent $6.7 billion on capital expenditures (the vast majority of that total is devoted to expanding Oracle’s global network of data centers).
A moment later, referring to the quarter ended Nov. 30 — which would be the last of the four quarters included in that $6.7-billion total — Catz said, “We are being careful to pace our investments appropriately but we still need to continue to build to meet our accelerating demand.
“CapEx this quarter [the one ended Nov. 30] was $2.4 billion as we continue to invest in our cloud to meet this accelerating demand.”
So Catz’s numbers mean that while Oracle spent $6.7 billion on CapEx for the 12 months ended Nov. 30, its rate of spending jumped dramatically in the final three months: In the first nine months, CapEx was $4.3 billion, but in the final three months it leaped to $2.4 billion.
That works out to a quarterly average of $1.43 billion over those first three quarters compared to $2.4 billion in the last quarter.
And Oracle is expecting that brisk pace to continue.
“With triple-digit IaaS bookings growth during the last couple of quarters, we now expect to spend about that same amount [$2.4 billion] per quarter for the next few quarters as we build capacity for our customers’ needs,” Catz said. So if Oracle maintains that quarterly rate of $2.4 billion for the next 4 quarters, it will spend almost $10 billion in CapEx for calendar 2023.
“That demand is reflected in our remaining performance obligation or RPO balance, which now totals $61.2 billion, up 68% in constant currency due to strong cloud bookings as well as to Cerner,” she said.
Here are a few of the key factors cited by Catz as the primary drivers of OCI’s 59% growth in constant currency during the quarter, which pushed OCI quarterly revenue to $950 million:
- OCI consumption revenue is up 88%
- Cloud@Customer consumption revenue is up 83%
- Autonomous Database is up 50%
- 40 cloud regions around the world are in operation, and nine more are under construction
- Oracle operates nine “national security regions with increasing demand for more”
- Without the results of Oracle’s legacy hosting services, that OCI growth rate would have been 69% in constant currency, Catz said
As I often mention, Oracle’s gaudy growth rates have to be seen in the context of the OCI business being much smaller than the infrastructure businesses of Amazon, Microsoft, and Google. At the same time, I think it’s the relatively massive scale of those three competitors that makes Oracle’s steep growth rates even more impressive: Almost 20,000 customers that could have chosen any of those big three original hyperscalers (Oracle is now the fourth) decided instead to go with Oracle.
That’s particularly pertinent when you consider that those three competitors are also three of the largest, wealthiest, and most-influential corporations on Earth — and in spite of those huge leads and their superior brand recognition in the IaaS market, Oracle is snatching many thousands of customers.
As Oracle executives like to point out, those new OCI customers are then often inclined to look closely at and perhaps buy some of Oracle’s massive portfolio of LOB and industry-specific applications.
Oracle closes its fiscal Q3 on Feb. 28 and will release its quarterly results a couple of weeks after that. On that earnings call, Catz will no doubt give a detailed update on whether those plans for investing $10 billion on data-center buildouts in 2023 are still on track.
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