Oracle Corp (NYSE:ORCL) is currently experiencing some "near-term headwinds" as it transitions Cerner (NASDAQ:CERN), its recently acquired Electronic Health Records (EHR) vendor, to the cloud, according to CEO Safra Catz on a Monday earnings call. The move is expected to cause a temporary slowdown in Cerner's growth rate as customers switch from licensed purchases, which are recognized upfront, to cloud subscriptions, which are recognized over time.
The technology giant completed its acquisition of Cerner for more than $28 billion just over a year ago, marking a significant expansion of Oracle's healthcare presence. Now, the company is moving all Cerner customers to the cloud in an effort to enhance performance and security. As part of this transition, Oracle plans to replace features of the older Cerner system with a new one, a process that Oracle's Chief Technology Officer Larry Ellison said is going "extremely well."
Despite the challenges associated with the cloud transition, Ellison stated that the Cerner health business is poised to secure two large new contracts valued at over $1 billion. This news comes in conjunction with Oracle reporting an 8% increase in revenue to $12.5 billion.
However, Oracle's push into the healthcare sector hasn't been without obstacles. Earlier this summer, the company laid off hundreds of employees and rescinded job offers from the Cerner unit due largely to ongoing issues with its Department of Veterans Affairs contract. Furthermore, two major health systems - Intermountain Healthcare and UPMC - recently announced their plans to transition away from Cerner to Epic, the largest EHR vendor in the country.
This shift has led to growing skepticism among providers about Cerner's viability as a long-term partner, according to a survey by research firm KLAS. Despite these concerns and the near-term revenue impact of the cloud transition, Ellison remains positive about Oracle's new business model and the future of Cerner under Oracle's stewardship.
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