Oracle Corp's sales fell more than expected in the first quarter, hurt by a strong dollar and as the rapid shift by customers to lower-margin cloud-based software failed to make up for waning sales of traditional packaged software.
Like its rivals such as SAP, IBM Corp and Microsoft Corp, Oracle is striving to boost Internet-based software sales to head off fast-growing competitors such as Salesforce.com Inc and Workday Inc.
Oracle's revenue declined 1.7 percent to $8.45 billion in the quarter ended August 31. Analysts on average were expecting $8.53 billion, according to Thomson Reuters I/B/E/S.
The company said sales increased 7 percent on a constant currency basis. Sales rose 3 percent rise on a similar basis in the previous quarter.
Oracle's net income fell 20 percent to $1.75 billion, or 40 cents per share, in the latest quarter. Excluding items, it earned 53 cents per share, more than analysts' estimate of 52 cents.
"We would characterize the quarter as better than feared by the Street," FBR Capital Markets analyst Daniel Ives said.
The results "should be enough for investors to believe the Oracle ship has started to stabilize after a disaster May quarter".
The company's shares were down less than 1 percent in extended trading on September 16.
Sales of Oracle's cloud-computing software and platform service rose 34 percent to $451 million in the quarter. Sales of traditional software licenses fell 16 percent to $1.51 billion.
Wall Street was expecting cloud-based sales to increase 35 percent and traditional software sales to fall 17 percent, according to RBC Capital Markets.
"In the foreseeable future the database business continues to be a dark cloud over the company's head," Ives said.
While Oracle has had success with its cloud model, analysts have said the 38-year-old company has not been moving fast enough to make up for declines in its traditional software sales.
Cloud-based software sales account for a small portion of Oracles' total revenue as they are subscription based, which promise a steady stream of revenue but with lower margins.
"Oracle must start to do larger M&A to put fuel in the growth tank as investors will remain skeptical about a turnaround," Ives said.
He named Splunk Inc, Tableau Software Inc, NetSuite Inc and Workday as "game-changing" acquisitions for Oracle.
Oracle expects about 95 percent of its products will be available on the cloud by October, up from around 65 percent currently, Co-Chief Executive Mark Hurd told Bloomberg in April.
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