甲骨文 (ORCL) 2020 Q2 法說會逐字稿

Welcome to Oracle's Second Quarter 2020 Earnings Conference Call.

Now I'd like to turn the call over to Ken Bond, Senior Vice President.

Ken?

Thank you, Holly.

Good afternoon, everyone, and welcome to Oracle's Second Quarter Fiscal Year 2020 Earnings Conference Call.

A copy of the press release and financial tables, which includes a GAAP to non-GAAP reconciliation and other supplemental financial information, can be viewed and downloaded from our Investor Relations website.

On the call today are our Chairman and Chief Technology Officer, Larry Ellison; and CEO, Safra Catz.

As a reminder, today's discussion will include forward-looking statements, including predictions, expectations, estimates or other information that might be considered forward-looking.

Throughout today's discussion, we will present some important factors relating to our business, which may potentially affect these forward-looking statements.

These forward-looking statements are also subject to risks and uncertainties that may cause actual results to differ materially from statements being made today.

As a result, we caution you against placing undue reliance on these forward-looking statements, and we encourage you to review our most recent reports, including our 10-K and 10-Q and any applicable amendments for a complete discussion of these factors and other risks that may affect our future results or the market price of our stock.

And finally, we are not obligating ourselves to revise our results or publicly release any revision to these forward-looking statements in light of new information or future events.

Before taking questions, we'll begin with a few prepared remarks.

And with that, I'd like to turn the call over to Safra.

Thanks, Ken.

But before I start, I'd like to acknowledge and thank you all for the many, many sincere condolences we received upon Mark's passing.

Thank you.

They mean a lot to us.

As you can see, we had another solid quarter.

This quarter, we finished with total revenue growth within my guidance range and EPS at the high end.

Cloud Services and License Support continue to see material growth.

And given that it represents more than 70% of our total revenue, it more than offsets declines in some smaller, nonstrategic businesses.

We continue to be encouraged that our overall revenue growth will further accelerate as we reach the final stages of this ongoing shift in business mix.

Of late, I've been spending much more time with customers.

The overriding theme I hear is the compelling nature of our technology and how it is critical to the success of their businesses: feature-rich, simple, secure, performant and priced right.

They see Oracle as being strategic to their ongoing operations, and they tell me repeatedly that Oracle is the right partner to run their mission-critical assets, both in the cloud and on-premise.

Their comments reinforce our conviction that our product strategy is right.

At Oracle, we've upgraded our internal systems to the cloud, and we are sharing our experience with customers by describing the stunning benefits and efficiencies that can be realized from the move.

And know we have thousands of customers that references our own experience adopting Oracle Cloud applications and infrastructure allows us to serve as a unique and knowledgeable adviser to customers who want to know how to go about their own digital transformation.

To give you some context, let me share just a few of the many benefits we are seeing in our business.

With Fusion ERP cloud, we are now able to close our books and report earnings in 12 days or less.

Many companies don't report their results for weeks.

And not only can we get our results out faster, but we've saved money, too.

By using the AI and processes in Fusion ERP cloud, we have been able to eliminate more than 30% of our manual accounting activities.

And enabled by Fusion HCM cloud, we have seen employee satisfaction levels soar with all-time high rates for things like hiring and onboarding new employees.

We've also made it easier for our managers and employees as Fusion HCM reduces the time needed to complete the talent review process by more than 70%.

And separately, we're saving more than 20,000 hours of manager time each year with our accelerated job offer process.

In sales, we're using our front-office cloud platform, augmented with machine learning and our own data cloud, to help our salespeople sell more and sell more quickly.

With Marketing Cloud, campaign planning now takes days rather than weeks.

And with built-in machine learning, we've seen a doubling in lead conversion.

We automatically capture millions of activities in sales cloud each year.

And with CPQ cloud, ordering is much faster and easier with over 70% of our transactions fully automated.

We needed that to handle the increased volumes of transactions as a result of our customers' move to the cloud.

In addition, we've adopted the Gen2 Infrastructure, including Autonomous Database, for our custom apps.

Our internal IT costs to run these systems are down by millions while, at the same time, we are adopting more than 100 new features each quarter.

Here at Oracle, we are going to continue using our own cloud technology as an intelligent automation engine and continue to simplify our business model and processes.

In turn, I expect that our revenue growth rates will increase and see even more expense efficiencies.

And as a result, I expect that you will see us expand our margins and grow EPS double digits for the foreseeable future.

Now on to the numbers.

I'll review our non-GAAP results using constant dollar growth rates, unless I state otherwise.

Currency for Q2 was largely in line with my guidance at nearly 1%, and the fact that the growth rates looked the same in a few categories is simply because of rounding.

Total Cloud Services and License Support revenues for the quarter were $6.8 billion, up 3%, accounting for over 70% of total company revenues and most of this is recurring revenue.

Cloud and On-Premise License revenues were $1.1 billion, down 7% as more of our GBU customers order cloud instead of license.

In terms of ecosystem, GAAP application ecosystem revenues were $2.9 billion, up 4%, with Fusion apps up in the low 30s, including Fusion ERP, up 38%; and Fusion HCM, up 23%.

NetSuite ERP was up 28%.

Vertical SaaS was up low double digits, while data cloud stabilized.

On a trailing 12-month basis, more than 90% of our application ecosystem revenue is recurring.

GAAP infrastructure ecosystem revenues were $5 billion, up 1%, with total database revenue up 1% highlighted by BYOL and Autonomous Database revenues, both up over 200% but off a small base for now.

On a trailing 12-month basis, more than 3/4 of our infrastructure ecosystem revenue is recurring.

Just a few days ago, we were able to get our first Gen2 Exadata Cloud at Customer fully deployed and connected.

It was done in just 4 days.

Previously, with our Gen1 architecture, this typically took significantly longer.

As a result, we are very optimistic about the impact our Gen2 Cloud at Customer will have on our business.

No other cloud provider has the right technology to actually do this.

In terms of geographies, we saw double-digit revenue growth in SaaS revenue in all regions, except EMEA, with especially strong results in Latin America and Japan.

Gross margin for Cloud Services and License Support was 85%, down slightly from last quarter due to accelerated investments in our Gen2 cloud to address higher demand worldwide.

As we get to scale, I expect our cloud gross margins will grow higher, driving an acceleration in our gross profit growth.

By the way, our strategic hardware products delivered on-premise, which includes Exadata, grew double digits for the quarter, once again showing that our installed base of customers focused on our world-leading database platform continues to grow.

Total revenue for the quarter were $9.6 billion, up 1% from last year.

Non-GAAP operating income was $4 billion, essentially unchanged from last year; and operating margin was 42%, down from 43% last year.

The non-GAAP tax rate for the quarter was 18.8%, slightly below our base tax rate of 20%; and EPS was $0.90 in USD, up 13% in constant currency and 12% in USD.

The GAAP tax rate was 17.7%.

And GAAP EPS was $0.69 in USD, up 15% in constant currency, 14% in USD.

Operating cash flow over the last 4 quarters was $13.8 billion.

Over the last 4 quarters, capital expenditures were $1.6 billion, and free cash flow was $12.2 billion.

We now have approximately $27 billion in cash and marketable securities.

And short-term net deferred revenue balance is $8.1 billion, down 1% in constant currency due to timing differences in customer payments.

Also, the prior year deferred balance was affected by our transition to ASC 606.

Gross deferred revenue was up over 1% in constant currency and would have been up over 3% if not for the ASC 606 transition changes.

We remain committed to returning value to our shareholders through technical innovation, strategic acquisitions, stock repurchases and prudent use of debt and the dividend.

This quarter, we repurchased 91 million shares for a total of $5 billion.

Over the last 12 months, we've repurchased nearly 500 million shares for a total of $26 billion.

And over the last 5 years, we've reduced the shares outstanding by more than 25%.

The Board of Directors again declared a quarterly dividend of $0.24 per share.

My guidance today is on a non-GAAP basis and in constant currency.

Assuming current exchange rates remain the same as they are now, currency should have a 1% negative effect on total revenue and $0.01 negative effect on EPS.

So for Q3, total revenues are expected to grow 1% to 3% in constant currency.

And assuming a 1% currency headwind, total revenues are expected to grow 1% to 3% in USD.

Now I realize that my USD and constant currency revenue guidance sound like they're the same number, but it's just rounding, similar to our revenue growth this quarter.

I do expect a currency impact of nearly 1%.

Non-GAAP EPS in constant currency is expected to grow between 10% to 12% and be between $0.96 and $0.98 in constant currency.

And assuming a $0.01 headwind, non-GAAP EPS in USD is expected to grow between 9% and 11% and be between $0.95 and $0.97 in USD.

Total CapEx for fiscal year '20 is expected to be around $2.2 billion, but it could move higher based on demand for data center growth.

My EPS guidance for Q2 and fiscal year '20 assumes a base tax rate of 20%.

However, onetime tax events could cause actual tax rates for any given quarter to vary from our base tax rate.

But I expect that in normalizing for those onetime tax benefits -- tax events, our tax rate will average around 20% in fiscal year 2020.

And finally, for fiscal year 2020, I continue to expect that in constant currency, total revenue will grow faster than last year, and that we will report double-digit EPS growth for the year.

And with that, I'll turn it over to Larry for his comments.

Thank you, Safra.

As I've said before, there are 2 key product areas that will determine Oracle's future in the cloud: Cloud ERP applications and the Autonomous Database.

Being the clear #1 in both of these 2 giant applications and infrastructure market segments will enable the success of our other application and infrastructure products in adjacent market segments.

This is already happening in applications.

We have a huge lead in Cloud ERP with over 7,000 Fusion ERP customers and 20,000 NetSuite ERP customers.

Our closest cloud ERP competitor is Workday, and they claim to have a few hundred ERP customers.

Workday's lack of success in cloud ERP is creating opportunities for Oracle in cloud HCM.

More and more, we are seeing HCM as being purchased as a part of an ERP cloud application suite.

As a result, today, we have more HCM customers than Workday.

And we're beginning to see that same integrated suite strategy beginning to drive our sales of CX, customer experience, applications in sales, in service and in marketing.

SAP never rewrote their ERP applications for the cloud.

As a result, SAP's installed base is very vulnerable.

We've already replaced and successfully migrated many midsized SAP customers from SAP to Fusion ERP.

Importantly, a few months from now, in Q1 calendar year 2020, one of SAP's biggest customers will go live on Fusion ERP.

Many of SAP's largest customers are already working with us to develop plans to migrate to Fusion ERP.

SAP's customer base is up for grabs.

They didn't rewrite their applications for the cloud.

That has created an enormous opportunity for Oracle.

We're already declared #1 in the cloud ERP market as measured in market share.

And our Cloud ERP business is already growing at a rate of over 30%.

By offering a safe and compelling alternative to SAP's old technology, we can increase our applications growth rate far beyond that 30%.

We are very, very comfortable that we will be overwhelming winner in this generation cloud ERP business.

Now let's look at some application wins in the quarter.

Advance Publications, a media company, bought ERP.

Albertsons got ERP, EPM and supply chain.

C.H. Robinson Worldwide, a transportation company, bought ERP and EPM.

DHL Supply Chain, big German company, bought ERP, EPM and supply chain.

Edwards Lifesciences, a medical equipment company, bought ERP.

By the way, I'm not mentioning any associated HCM deals because I have a separate list for HCM.

So a lot of these guys -- maybe next quarter, I'll put the HCM deals right next to the ERP deal so you could see -- because I'll be repeating a lot of these names when I get to my HCM list.

That's the point I made earlier that people are now looking at HCM as just another module that we need in the back office.

Very important.

Edwards Lifesciences bought ERP.

Ferguson, a manufacturing firm, bought ERP and supply chain.

Globo companies, big energy firm, bought ERP, EPM and supply chain.

NCR Financial Services bought ERP, EPM and supply chain.

NetScout, telecommunications company, bought supply chain.

Mutual Life Assurance bought ERP and supply chain.

Southern Star Central Gas Pipeline, big energy company, bought ERP.

Technip, another energy company, bought ERP.

By the way, SAP is supposed to be very strong in energy.

Texas Children's Health Care -- Hospital bought ERP, EPM and supply chain.

Unilever bought ERP and supply chain.

Baker Hughes, energy company, bought ERP, EPM and supply chain.

Carlson Wagonlit, travel services, ERP, CPM and supply chain.

Kuwait Petroleum, energy company, bought ERP, EPM and supply chain.

Liberty Global, communications company, ERP, EPM and supply chain.

Manpower, the global services company, bought ERP, EPM and supply chain.

Sherwin-Williams, that's what they bought: ERP, EPM and supply chain, the suite.

A lot of people are buying multiple modules.

It's not just ERP.

It's ERP, it's EPM, Enterprise Performance Management.

It's supply chain.

It's manufacturing.

Bank of New York Mellon bought ERP, EPM and supply chain.

Airport Terminal Services -- oh, I'm sorry, now I'm on my HCM group.

I'm in the HCM group, they're all grouped together.

Airport Terminal Services bought HCM.

[Apparel Bosco], retail, HCM.

Banque Saudi fransi bought HCM.

CenterPoint Energy, another energy company, bought HCM.

Cummins, manufacturing company, HCM; Graybar Electric bought HCM; Holologic (sic) [Hologic], HCM.

HUS, that's the hospital -- those are the hospitals in Finland run by the federal government in Finland, bought HCM; Mountaire Farms, HCM.

North Atlantic Refining -- again, this is my HCM list -- big energy company, and SAP's stronghold in the energy sector, bought HCM from us; Southern Star Central Pipeline, big gas company, energy, HCM; Technip, energy company, HCM.

Tenet Healthcare bought HCM, Texas Children's Hospital bought HCM and Whatabrands bought HCM.

Birmingham City Council bought HCM.

Kuwait Petroleum Company, a big energy company, bought HCM.

MEDNAX health care, HCM; Phoenix Life Holdings, HCM.

In customer experience, Equinix bought service.

Ferguson Enterprises bought service.

Ferrari bought sales and marketing.

IKEA bought service.

Nordstrom bought service.

PayPal bought marketing, Rabobank bought service and Santander Bank bought service.

Okay.

Let me move on to the other segment, which is Autonomous Database and Gen2 infrastructure.

In the database market, we are the overwhelming #1 with a combination of a dominant share on-premise and very strong market share in the cloud.

Though I have yet to see any good data on database market share in the cloud.

Our database business is growing very, very rapidly because we have an enormous technology advantage in the cloud over all of our competitors with Autonomous Database.

Autonomous Database is the world's only autonomous database.

What does that mean?

That means when you configure the system, you don't do anything.

The system configures itself.

Robots configure the system.

The reason Capital One lost all that data at AWS is because one of the Capital One people made a configuration error.

You can't make configuration errors with the autonomous database because human beings don't configure the system.

A lot of these above-the-fold headlines of people losing their data are caused by human errors.

People forget to patch systems.

Remember that one?

They patched some but not all of the systems.

And Equifax.

Equifax, it was a patchy [structured] database, didn't get patched.

They didn't find them all.

Guess what?

Autonomous Database automatically patches itself when a security flaw is detected.

And by the way, they detected that security flaw over at Equifax.

They knew about it.

They just didn't get around to patching it.

Patching it is hard.

They have to find all the databases.

You have to schedule downtime.

You don't schedule downtime with the Autonomous Database.

You patch the Autonomous Database while the database is still running.

But you don't patch the database.

It's the robots.

Our robots patch the database.

That's why it's autonomous.

There's no human labor, so there's no human error.

So if you're willing to pay less and not have that human labor, you get rid of all those mistakes.

This is a gigantic technology advantage.

By the way, and we're 10x faster than anything Amazon has.

That means we're much cheaper than anything Amazon has, much safer, much easier to use, builds applications faster.

So we already have thousands of Autonomous Database customers running in our public cloud.

We added 2,000 more this quarter.

And our autonomous business, as Safra said, is growing in excess of 200%, our Autonomous Database business, off a small base.

Admittedly, it's a relatively new product, but it's on its way to being the most successful new product introduction in our company's history.

Now this triple-digit growth rate I expect will spike up dramatically because of another thing Safra just mentioned, our introduction of our Autonomous Database Cloud at Customer, Gen2 Cloud at Customer.

Now when people can start putting Autonomous Database, they're already -- I mean all our Autonomous Database customers, let me be clear, are in our public cloud.

A lot of our customers, especially those in regulated markets, big banks, people -- government agencies, defense ministries, people have got -- they need the Autonomous Database capabilities behind their firewall in their data center.

And over the next few months, we're rolling out this Autonomous Database Gen2 Cloud at Customer.

Now all of our cloud competitors are trying to create these outposts of their cloud on the floors of their customers.

We actually have it working.

And in fact, we're in our second generation of this.

We did it early, albeit at a reasonable first generation job, but the second time's a charm.

And this new Gen2 stuff was -- can be installed in a day.

Now the first one we installed in 4 days.

We expect to do that even faster.

There will be more time spent unpacking the hardware and plugging it in than readying the software because it just syncs up with our public cloud, and you're off and running.

This is going to be a huge opportunity for us to dramatically increase the adoption rate on Autonomous Database, very excited about that.

Okay.

When that happens, we think by any measure, we will be -- not only have the overwhelming market share lead on-prem but the overwhelming market share lead in the cloud.

We expect to hold on to our database franchise in a big way.

So it's interesting that both of our Autonomous Database and our cloud applications are running in our new Gen2 highly secure infrastructure.

And by the end of 2020, by the end of next calendar year, this time next year, I'll be able to say that we have more Gen2 data centers in more countries than Amazon Web Services has data centers, period.

We're adding lots and lots of data centers in lots and lots of countries.

And again, we'll have -- we'll be in more data centers in more countries than Amazon by the end -- a year from now.

That's very, very exciting.

Now let's look at some of our Autonomous Database and Gen2 infrastructure wins this quarter.

Okay.

Afia International, big manufacturing firm; Albertsons.

This is another -- this is more synergy that -- I've got to mention, when people buy our applications, they buy our ERP applications.

They also build data warehouses associated with those applications.

They do a lot of work.

So a lot of our application customers are beginning to be Autonomous Database customers and infrastructure customers.

So yes, when you buy ERP, you might also buy HCM.

But when you buy ERP, you're also going to buy the Fusion data warehouse, which is an Autonomous Database product and an infrastructure product.

You're going to buy analytics and our Gen2 data center.

You're going to become an infrastructure customer as well as an application customer.

And we see a lot of overlap.

We often see people buying suites of applications, ERP plus HCM plus sales, things like that, but also applications plus infrastructure.

Aon Financial Services; Biogen bought autonomous data warehouse; Cisco Systems; again, Gen2 infrastructure and autonomous data warehouse; Clearstream Services, same thing, Gen2 infrastructure, autonomous data warehouse; Embraer Aviation, the Brazilian airplane -- aircraft manufacturer, autonomous database and Gen2 infrastructure; Equity Bank of Kenya, autonomous database, Gen2 infrastructure; Fastenal Company, a big distribution company in the United States, Gen2 infrastructure; Health Care Services Corp, Gen2 infrastructure and autonomous database; Interac, Gen2 infrastructure; King Faisal Specialist Hospital & Research Centre, Autonomous Database, autonomous transaction processing; Macquarie University, Autonomous Database, Gen2 infrastructure; Manchester, Autonomous Database and Gen2 infrastructure.

MGM Entertainment, Autonomous Database, autonomous transaction processing; Providence Health Care Services, Autonomous Database, autonomous transaction processing; Schenker Logistics in Germany, autonomous data warehouse; [Sour], Gen2 infrastructure; Swiss Post, Gen2 infrastructure, autonomous data warehouse; Target, based in the United States, Autonomous Database -- autonomous data warehouse; Technip, energy company that I've mentioned that bought, I believe, HCM, ERP, bought the full suite and Gen2 infrastructure and Autonomous Database; The Boston Globe, Gen2 infrastructure, Autonomous Database; Thermos, Autonomous Database, autonomous transaction processing; Hypersoft, Autonomous Database; Tideworks Netherlands, Gen2 infrastructure; Tokyo Gas and Electric, autonomous data warehouse, Gen2 infrastructure; TriMark USA, Gen2 infrastructure; Walgreens, autonomous data warehouse, autonomous transaction processing, Gen2 infrastructure; [Weizig Bank], autonomous data warehouse, Gen2 infrastructure.

ZIM, the big shipping company, you see a lot of Maersk, you see ZIM on lots and lots of containers, Autonomous Database, autonomous transaction processing and Gen2 infrastructure.

AXA Equitable Life Insurance, Autonomous Database, Gen2 infrastructure; Banco de Chile, Autonomous Database, autonomous data warehouse, Gen2 infrastructure; Baxter Healthcare, autonomous data warehouse; Cigna Corporate Services, autonomous data warehouse, Gen2 infrastructure; Eventbrite, Gen2 infrastructure; Ford Motor Company, Gen2 infrastructure, Autonomous Database, autonomous warehouse; Mary Kay, Gen2 infrastructure; Samsung Electronics, Gen2 infrastructure, Autonomous Database, autonomous transaction processing; Vericon, Gen2 infrastructure, Autonomous Database and autonomous transaction processing.

With that, I will turn it over to the audience for questions.

Thank you, Holly.

Thank you, Larry.

Holly, if you could please prepare the audience for questions?

(Operator Instructions) And our first question is going to come from the line of Michael Turits, Raymond James.

Safra, it was great to see that you reaffirmed your guidance for the full year for revenue acceleration and double-digit EPS growth.

But with the 3Q guide, it does suggest a very strong fourth quarter on top of what was a strong fourth quarter than last year.

So can you give us a little bit of visibility into what's driving that confidence?

And also, I know it's early, but given what that means for fourth quarter, what does that mean in terms of what it implies about fiscal '21?

So we've got everything finally out and available.

And as Larry and I both mentioned, we've got Cloud at Customer.

We have a lot of orders for that, that we have not deployed yet, so we've got a lot of demand there.

We've got Autonomous Database.

We've got new versions of Autonomous Database on track.

We've got the entire Fusion suite rolling, including all of the additional modules have all been continuously upgraded, so we've got an immense amount of demand.

And we have enormous pipelines, and our conversion rates are increasing.

And so the pipe has just expanded so dramatically that I know we're going to have more bookings but also previous bookings, as those deals are ramping up and more users are using the products, we're very, very upbeat about the second half but even more so next year.

We believe that the momentum we will have in the second half of this year will more than carry through to 2021.

And our next question is going to come from the line of Heather Bellini, Goldman Sachs.

And I'm going to try and get away with 2 questions.

But I guess, the first one, Safra, as you mentioned about License this quarter, it was a little lighter than what I think people were expecting.

I know we're talking about a big base, but if there's anything you could call out in terms of whether it's the sales force reorg or just macro or whatever in terms of the results in the quarter on that line.

And then I know just covering the company for a while, given the lumpiness historically between Q2 and Q3, I know sometimes deals push from 1 quarter to the next and typically, it's better to just average those 2 quarters.

But how do you feel about the outlook for the Q3 license number?

And then I just had one follow-up, if you don't mind.

I generally feel very good about the Q3 license number.

As you said, it is lumpy.

The one thing we do have is that the GBUs, which are, of course, not a giant part of our license business but are significant, they have moved, and their cloud products have become available.

And I do expect that most of the orders for new services in the GBUs will come through as Cloud Services instead of just plain license.

But I don't think that will be as significant.

I do expect that licenses, in fact, will be just fine in Q3 other than the GBU piece.

Okay.

And then -- and just my follow-up, I mean these calls just still don't feel the same without Mark being on them.

And with all due respect to him, to his passing, just knowing how hard it is going to be to replace him, I mean, is there anything to share with us regarding you getting someone to kind of help take his place and some of the responsibilities that you've taken over?

Okay.

This is Larry.

I'd like to answer that question because I get the question is: so how is our search for a second CEO guy?

I remember when we announced 2 CEOs the first time was people thought that was a bit odd.

And so now people are finding that we have 1 CEO is a bit odd, 2 is a bit -- so let me make it very simple.

How is our search going for the new -- for a second CEO?

We don't have one.

We have no plans for having a second CEO.

It was an unusual situation where Mark and Safra were an absolutely fantastic team, but we have complete confidence in our existing management team.

We're doing a lot of recruiting.

You'll see a lot of announcements at the next layer down, that we're hiring a bunch of people at the next layer down who are potential CEOs when both Safra and I retire, which is not anytime soon.

And so we're going to strengthen the management team, but one of the strategies for strengthening that team is not to hire a second CEO.

Our next question is going to come from the line of Brad Zelnick, Cr?dit Suisse.

Great.

Larry, the momentum in Autonomous Database is fantastic, growing over 100% in your public cloud.

But having been in market now for over a year, I know investors are wondering when we might see an inflection in your financial results from Autonomous.

And I appreciate many customers are including some of the required database option in their deals.

But now that you're making it available on Gen2 Cloud at Customer, how should we think about the appetite from your installed base?

How material can it be to your financials?

And is there anything you might compare it to in Oracle's history?

Well, no.

I mean either -- in terms of the technological breakthrough, well, yes, I guess we're the first commercial relational database.

The very beginning, that's kind of what created Oracle Corporation, right?

So we had the very first commercial relational database.

We had one before IBM did or anyone else did.

So that traded -- that turned this company from an idea into the company that manages most of the world's information.

So I would say Autonomous Database is that same kind of thing.

It is so much different, so much safer to use, so much more reliable than anything else that's in the market.

I think everyone is going to use it.

Virtually everyone is going to use it.

Now that said, it is -- it takes a while when you introduce an all-new product.

The good news is we have a huge installed base.

It takes a while for that -- for us to ship, if you will, a next-gen technology and get people comfortable with it and using it.

And that first year, we've seen a lot of early adopters, but the early adopters are now in the thousands.

And we think, eventually, the only database we'll offer is Autonomous Database.

It will replace everything else.

And by the way, an Autonomous Database is only available in 2 forms.

If we put a cloud -- if we put our cloud in your data center, that's our Exadata machine and our middleware machines, and all of that's in our storage in your data center and in our public cloud.

So we think it'll be consumed in one of those 2 ways and that will replace our entire base.

So it means that our existing database business, from a financial standpoint, will more than double or triple -- or triple probably is a reasonable estimate to look at.

Now of course, when you're in your business, it's all about timing.

And I wish I could tell you exactly how much we'll sell over the next 18 months.

That's kind of tricky.

Now we don't have that many data points.

We have 4 quarters of data points.

And the first couple of quarters, it was so new.

So we really only have a couple of quarters of data points.

All I can say is none of us have ever seen an adoption rate like this before.

Our next question is going to come from the line of Phil Winslow, Wells Fargo.

Just wanted to focus in on the applications business.

Obviously, you saw a nice tick back up here quarter-to-quarter in terms of the year-over-year growth rate.

I guess the question is for Safra and I guess Larry, too, when you think about the sort of the different curves that build up that business, obviously, you've talked about it in the past, some of the headwinds from things like Data Cloud but then also some of the wins that we saw in your Fusion, Fusion ERP and NetSuite this quarter.

Where are we when we stack all those curves together?

Are we past sort of those headwinds, and we're now looking at sort of acceleration from here?

In other words, Q1 was the trough?

Or just help us kind of layer cake that up if you could.

So let me get it started, and then Larry can add when he needs to add.

So first of all, the Data Cloud has stabilized.

I don't know if it will stay that way, but that was a very significant headwind for us in that whole business.

It has completely stabilized.

It grew ever so slightly.

Additionally, the adoption in our ERP cloud is now such that it's in the thousands.

We have many, many references.

And what happens in our business is that once you are sort of obviously referenceable, it becomes much, much easier for other potential customers to move ahead.

One of the things that had been, to some extent, leading to a wait-and-see attitude by some historically business suite customers was the adoption of, first, availability and now adoption of supply chain.

Our supply chain now has many, many customers.

And so more of our customers are willing and interested in moving.

Remember, every single quarter, 100-plus new features become available.

And some of those have been must-have features for extremely happy customers in the business suite.

Simultaneously, as Larry mentioned, SAP customers realized that SAP's offerings are not cloud offerings.

If you use SAP's technology, you don't get 100 new features every quarter.

Theirs is simply a hosted offering, which means that we are the obvious choice for customers who want to go through and really adopt a digital approach in their business.

And so for us, this is going to be success leads more success.

It's an incredibly virtuous cycle.

And as Larry mentioned, what it also means is that additional modules are going with, and that's clearly showing up in our other segments.

And of course, HCM, which is obviously a match and then ultimately, the front office, where we've got a lot of new technology rolling out that is being adopted.

Yes, I think a lot of SAP is -- again, in the mid-market, we are replacing a lot of SAP customers.

And we've got them live, and we have references.

But right at the very apex of SAP's customer base, in their top 50 customers around the world, they're all looking at this one particular implementation that -- where we expect to go live in March next year.

And I would describe them as rooting for us.

They want to have an alternative to a $1 billion SAP upgrade.

SAP end-of-lifed their current stuff in 2025.

So if you're a big SAP customer, you've got to make it -- in fact, some people have bought -- actually bought ahead -- actually bought S/4HANA in the cloud with no plan -- with no really good plan to implement.

It's a 5-year implementation.

They're getting price quotes of $1 billion for the upgrade.

Imagine going from your existing SAP system, taking out Oracle and replacing HANA, and that's the only change.

Basically, that's the only change.

And it's hosted, it's not cloud.

There is no cloud.

Anyway, I want to say -- well, it's easy for Oracle to say, go to SAP's website and try to find the SAP cloud for ERP.

I mean you can find it for the stuff they bought.

You can find it for Callidus, which is on one cloud.

You can find it for Ariba, which is on another cloud.

You -- I mean you can find it for little SurveyMonkey and all the stuff that they bought.

But they forgot to write ERP -- that's their business, and they forgot to rewrite ERP.

Their projects that they had to do, they're called business by design, failed.

They canceled it.

So there is no cloud option for SAP's customers.

They can't go to Workday.

Workday can't even handle mid-market ERP.

So we're it.

So believe me, they want an alternative to SAP.

Makes sense, right, that they should want an alternative.

But we've just got to demonstrate that we can safely take these enormous companies to the cloud in a way that they're not putting their business in any risk.

And that's why this one particular giant implementation, they're watching closely.

But by the way, they're not just watching and waiting.

A number of their biggest customers in the heart of Germany, lots of them are working with -- these are German customers, the core of SAP, are working with us and taking some of their -- moving some of their divisions already -- some of their divisions to Oracle Fusion to persuade themselves that we could do this safely.

They've gone that far.

They don't want to continue with this obsolete code.

This is -- this opportunity is gigantic because we have 1 ERP customer on -- competitor on-premise.

They don't have a cloud offering, that's SAP.

And we've got 1 ERP cloud competitor that just is not doing very well, having a hard time getting their business off the ground, doesn't scale, there are a lot of problems.

So we have a chance here to be -- to get what used to be in the old world called gate share for ERP and like Microsoft Office, to be the Microsoft Office of ERP, and it's sitting there.

And we just have to get this last proof point out to SAP's largest customers, yes, we can do this, we can do it safely.

And we will be overwhelmingly the largest application company in the cloud.

Our next question is going to come from the line of Mark Moerdler, Sanford Bernstein.

Autonomous Database sounds like it's really starting to gain traction.

Given the shift of sales personnel to selling Autonomous, can you give us some more color specifically?

Specifically, are you seeing the customers buying the required modules as license?

Are they including it with the cloud?

Are you seeing changes in the size of the customer, the size of the pipeline, the time it takes from customer interest to adoption?

Any of that would be really appreciated.

Okay.

I'm happy to do that.

I think the most interesting thing that's going on is we've decided to take, if you will, an AWS approach to selling Autonomous Database in the cloud.

So we almost prefer selling a $30,000 deal to $100,000 deal because a $30,000 deal we can close in 4 weeks.

So we think the way to sell Autonomous Database is to get it installed on a project in one of our customers, get it going, help them become successful.

And then once they actually got their hands on Autonomous Database, and they have working out -- and they have working projects, working data warehouses, working transaction processing systems, you start land-and-expand.

So we are selling thousands and thousands of small deals.

And some of those deals are already coming back as larger deals.

But our approach again, is to -- and most of it is not BYOL because they're small.

I mean some of it is, not -- some of it is BYOL, but the majority is not BYOL.

It was interesting in the early days in ERP, when we had ERP, people said, well, you just move your e-business suite customers.

No, they were new logos.

But in the early days, in cloud ERP for us, they were new logos.

Believe it or not, we're actually seeing new logos in database.

But again, most of them are our customers.

But they're not using their existing licenses, they're going ahead and using a standard cloud license, it's called -- what we call takeup.

They pay us takeup, you pay for what you use.

I mean it's the promise of the cloud.

And we're getting thousands of these because we think the best-selling technique for Autonomous Database is try it, get it running, watch.

It backs itself up.

It upgrades itself.

It tunes itself.

It configures itself.

There's nothing like it.

We just got to win those hearts and minds.

And the way to do that is go wide across our entire customer base.

That's what's going on.

And again, it's working very, very well.

I think it's working very, very well because we're seeing -- just beginning to see the first people coming back and going from $30,000 a month to $600,000 a month.

Our final question for today will come from the line of Kirk Materne, Evercore.

Safra, I was just wondering if you could comment on just sort of the geographic landscape for you all.

It looked like Europe was perhaps a little bit softer than your other geographies this quarter.

Maybe that's just macro.

I was wondering if you could just add a little bit color on sort of what you're seeing across the different theaters.

Yes.

This quarter, EMEA only grew in the single digits.

Some of the other regions did grow in the high double digits, some very high double digits.

And I think there's nothing really special going on one way or the other.

Some of it's just the way the quarter falls out for them.

But overall, our business remains very strong.

And I think that next quarter could be completely different.

So it was -- it's really nothing.

We're not seeing a massive change even month-over-month or quarter-over-quarter from what it looked like.

Obviously, there are some regions doing very, very well for a number of different reasons as they get to roll out new capabilities.

We've got a lot of -- we've got data centers opening and have opened very, very successfully in Latin America and in Asia and in Japan.

And so we've got a lot of usage and increase in some of those areas, which helped to explain some of the big growth in some of those areas.

But EMEA, I think we'll see -- there's nothing special, in particular.

I have no real color to add.

And we'll see what happens after today's election in the U.K.

Thank you, Safra.

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With that, I'll turn the call back to Holly for closing.

Thank you.

Thank you for joining us for today's Oracle Second Quarter 2020 Earnings Conference Call.

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