The Zhitong Finance App learned that the US Department of Defense announced on Thursday that it has signed an enterprise-level software agreement with software giant Oracle (ORCL.US) for a maximum period of 10 years and a total value of close to 7 billion US dollars. Boosted by this news, Oracle's stock price rose by about 3% during after-hours trading at one point.
This contract, called the “Enterprise Software Agreement,” is being negotiated under the leadership of the US Department of Navy. The aim is to consolidate distributed locally deployed software licenses from various departments of the US Department of Defense, the US Coast Guard, and the intelligence community into a single contract. The basic term of the agreement is 5 years, and there is also a 5-year renewal option, which covers perpetual and subscription software licensing, maintenance and consulting services.
US Department of Defense Chief Information Officer Kirsten Davis said in a statement: “By fundamentally improving the way we procure Oracle's local deployment capabilities, we have saved taxpayers at least US$441 million while being able to serve combatants quickly and effectively.” It's worth mentioning that the CIA was Oracle's first customer.
This agreement with Oracle is the latest initiative led by Davis to reduce the Department of Defense's repetitive software expenses and implement unified procurement at the enterprise level. In May of this year, its office reached a similar five-year agreement with Microsoft (MSFT.US) worth 9.69 billion US dollars to integrate Microsoft and other enterprise software licenses distributed by various military branches and intelligence agencies into a single contract to end the procurement model that had been governed separately for many years.
This big deal also provided Oracle with important government business endorsements. Oracle co-founder Larry Ellison has a close relationship with US President Trump. He donated $45 million to non-profit organizations supporting Trump's 2024 campaign. During Trump's second term, Ellison became one of the first guests to visit the White House and announced the “Stargate” artificial intelligence (AI) data center plan; Trump also supported Oracle's acquisition of shares in TikTok's US business. In May of this year, the US Department of Defense announced that it had reached an agreement with Oracle and other technology companies to deploy AI in classified networks.
Despite winning a major defense order, Oracle is still facing market pressure this year. As investors worry that the rise of AI may impact the growth prospects of traditional software companies, Oracle's stock price has dropped 38% during the year. In order to seize the AI computing power market, the company is burdened with tens of billions of dollars in debt to build AI data centers on a large scale. In terms of performance, according to quarterly data released by Oracle in June, its software revenue fell 2% year over year, but benefiting from providing AI computing power to customers such as OpenAI, cloud revenue increased 47% year over year.