甲骨文 (ORCL) 2001 Q4 法說會逐字稿

ORACLE CORPORATION FOURTH QUARTER CONFERENCE CALL

Good day everyone and welcome to the Oracle Corporation fourth quarter financial results conference call. At this time, I would like to introduce Oracle Corporation's Senior Director of Investor Relations, Stephanie Aas. Ms. Aas, please go ahead, madam.

Thank-you operator. Good afternoon everyone. I would like to introduce here the speakers today, Larry Ellison, Chairman and Chief Executive Officer and Jeff Henley, Executive Vice-President and Chief Financial Officer. Today's call will begin with Jeff reviewing some of the key financial results and Larry will cover the state of the company and industry trend. This discussion will then be followed by a Q&A session. Before we began, I would like to review the required statement for safe harbor. Our discussion may include predictions, estimates, or other information that might be considered forward-looking. While these forward-looking statements represent our best current judgment on what the future holds, they are subject to risks and uncertainties that could cause actual results to differ materially. Throughout today's discussion we will attempt to present some important factors relating to our business that may affect our prediction. You should also review our most recent Form 10-K and Form 10-Q for a complete disclosure of risk factors. Now, I will turn the call over to Jeff Henley.

Okay and thank you Stephanie. Well, Q4 was definitely a challenge as we had predicted, while we ended up making the ¢15 per share we targeted at the start of the quarter, which is the same as a year ago, excluding the large securities gain, the last year, the previous year with Oracle Japan. We made it due to continued expense efficiencies. Licensed growth was negative 10% rather than flat as we had hoped due to the softening in Europe, that happened during the quarter, as well as continued weakness in the US. Total revenue was down 3% from last year's Q4. A contributing factor was that currency ended up negative 4% versus negative 2 that we forecasted at the start of the quarter. So, the currency continued to deteriorate relative to dollar around the world. As we said on last quarter's call, we had a double whammy affect on demand. First the US economic slowdown created an uncertainty, so buying decisions have been pushed out. Second, the implosion of the dotcom has meant significant negative comparisons in both our fiscal third and fourth quarters. In addition, Europe has now began to soften a bit, plus the euphoria surrounding the Internet has subsided this year and while corporations are still keenly interested, they appear to be working down the existing projects and reassessing their E-Business strategies, so that demand has temporarily dampened, although, I think it bodes well for Oracle long-term, since a more coherent integrated E-Business strategy going forward will favor us. Despite the disappointing short-term earning environment for technology companies in general that has certainly affected most market segments including the enterprise software. We are pleased that we have done relatively well in maintaining our profitability. For instance, our full year fiscal operating margin ended at 35% compared to 30% for the last fiscal year, which had a been a huge increase from the previous best year of 22%, and that's all due to our billion dollar savings, E-Business savings program.

Therefore, we have managed so far at least to continue our margin improvements over this last two years and despite the slowdown, we are now awaiting for a resumption to normal demand, which we continue to believe and probably won't have until the end of the calendar year, this calendar year 2001. I would like to point out that we have never had a down year and excluding security gains in the last 10 years here at Oracle, and despite the rough second half our net income for the full fiscal year was up 25%. I will walk through the details of Q4 next, but before I do it, let me make a couple of observations about Q1, and this next fiscal year. For the third quarter in a row, there continues to be less demand and less visibility than if we are in a normal economy. However, it feels to us like in Q4 we hit the bottom and if anything demands, maybe get it a bit better in Q1, although, it certainly won't be a full return to normalcy. The reason why things may begin and start to get better in Q1 are the following: (1) After several quarters of sudden economic slowdown in the US, the Fed is taking strong action, the Congress has enacted and retroacted tax decrease, and I think mainly exactly they have started to feel like that things may not be getting a whole lot worse and so there is less uncertainty. Uncertainty is always our worst enemy. In addition, our sales force is getting smarter about how to sell in this environment. Finally, high ROI projects are on E-Business, it can only get delayed so long before management decides they need to press ahead. (2) Our dotcom comparisons going forward for Q1 and Q2 are somewhat less negative, and by Q3 they should no longer have any impact. (3) Our 11i applications are now very stable, our demo performance is very good now and we have hundreds of solid reference, and I think over 400. There is no question, we have lost the momentum in the last 6 months, because 11i was a massive complex release, which took longer to sort out than we expected.

But, now we have lot of great references and this should really help to prove our unique value proposition and we continue to see great interest in the market. We are the only vendor in the marketplace today, who can drive an ultimate standard, Internet architecture interoperable with other vendors and with rich ERP supply chain and CRM suites, that are completely integrated to give rapid implementation, lower cost of ownership and richer information. (4) Our 9i database and applications server launch last week is very exciting. This is the biggest database release since Oracle 7, almost 10 years ago. Coupled with much more marketing focus on technology this summer, we will dispel the marketing myth put out by IBM this past year, and we believe it will now get attraction in the faster growing application server market because we now have substantially superior performance to both BEA and IBM. Again, we will aggressively advertise the facts. In this environment, there are certainly no guarantees and there continue to be risks, but we are cautiously optimistic that things will start swinging upwards. If they do, they will start probably modestly, but we could well end up the fiscal year with very good growth and earnings. So, let me just cover a couple of details and I will turn this over to Larry. In Q4 again, our revenue ended for the quarter at 3.264 billion, our license revenue was down 10%, server growth was flat, and applications were down 24%, partly because we had by far the largest and toughest comparison in applications in the year before. In terms of our large deals, deals over half a million dollars, not surprisingly they were somewhat lower than Q4 a year ago, 52% versus 56% a year ago.

In terms of the services that breaks down, support was up 14%, consulting and education were down 6%. Geographically, the America's was down 8% again led by the weakness in the US. On a local currency basis there was 1 point of negative, so it was down 7%. In Europe, it was in dollar terms up to, but in local currency up 9%, Asia-Pacific where we have seen a lot of negative currency was up 7 in dollar terms, but up 20% in local currency. Headcount was down sequentially with 1%, which we commented at the start of the quarter. Our headcount would probably drop 1% to 2%, that was a slight affect we added some more DP, it was actually the rest of the count is down a little bit more than 1%. Year-over-year headcount is up 4 percentage points. In terms of cash, we ended up the year at $5.9 billion and again, we had a lot of cash at the start of last year, but remember because of that large sale of Oracle Japan stock. Our DSO was flat to last year at 67. I guess just a couple more points on the guidance for Q1. At this point, we will guess that our license growth is probably going to be flat. I would say as opposed to last quarter when we put out guidance, we said there is probably more downside then upside. I would say that this quarter might be the opposite. It might be more upside at that number than downside and we will suggest a flat earnings number of ¢8 versus ¢8 a year ago, and again I would say the same thing that there might be more upside than downside and that number if we are right are since based on our pipeline, based upon a lot of conversation with field people over this last week or two, but definitely it feels like for the reasons that I mentioned earlier that things are starting to pickup a bit. So with that I will turn the call over to Larry to put his comments and then we will take questions.

Okay. At the beginning of last year, we came out with release 11i, the E-Business Suite, and again we advertise, this is the industry's first complete and integrated set of applications to run all aspects of your business, sales, service, marketing, supply chain automation, HR, accounting, you name it, we have it, all the pieces were integrated. No one else before had tried to do this, I mean it was conventional wisdom, and to a large degree it is still conventional wisdom, but the way to automate your business is to buy applications from lots and lots of different companies and then hire a big consulting firm to put all the pieces together and with the Oracle idea, it is interesting, but unproven. While the idea is still interesting, but it is no longer unproven. The world's greatest company, the world's largest company, the world's best managed company General Electric is now using the E-Business Suite in multiple divisions to great affect. There area a variety of GE Power, GE Medical, and again all throughout General Electrics. Perhaps, the most interesting was that GE Power, where they had actually reengineered their business, implemented the E-Business Suite and finished the entire project under budget and ahead of schedule to rollout a brand new plant in Europe. Not a single line of Oracle code was modified. In other words, we finished the software for GE, GE didn't have to finish the software for us, nor did they have to hire a consulting firm for them to finish for us. There are many other General Electric implementations going forward this year. If it works, if the company decides at General Electric that we can do implementations in a matter of months, where our competitors do it in a matter of years, if we could do it under a budget and we can do it ahead of schedule. This is a huge competitive advantage in the marketplace and it also per shadows a continuous decline in our consulting business because we simply don't have to modify our software.

We are not doing lots and lots of integration between the Oracle pieces. The Oracle pieces are integrated by engineering, by design. The only thing we have to integrate is to legacy systems or third party systems; by the way GE has none of those. I have read that we still, the way we made our Q4 numbers was to steal up from Q1 and just the opposite is true. We said, well no, it was a number of big deals in Q4 because of the classic approach of approaching Oracle for huge discounts in Q4 was something; we are out of that business. We encouraged our customers to buy what they need, when they need it, not to buy in advance, and those huge discounts that were available are no longer available to our customers. There is tremendous value available for our customers. We can install the applications faster and for less money than anybody else, and that's not just true at Hewlett Packard. We completely automated the Hewlett Packard's sales force globally without modifying a single line of code. We went live in over a 30 countries in a matter of months, and I don't believe there is single Siebel sales force automation implementation that has a global implementation and we did it with no modification in a matter of months at Hewlett Packard, Ford, Cathay Pacific, Boeing, Bell South, Wachovia, you have got a list in front of you that shows, we highlighted 10 of more than 450 customers that are currently live after just 1 year of the E-Business Suite. A year from now, we will have over 4000 customers live on the E-Business Suite. There are 3500 ongoing implementations of the E-Business Suite. Again, as I said in the press release an untested idea that has now become proven technology as the best managed in the company in the world, the largest company in the world can use it. So can everybody and by the way it is not just the giants for using this technology and includes small companies like Papa John.

They are using it. We are the world leader in configured pizzas. In automating that business, I don't think anyone can touch us in that vertical market of configured pizzas. That was the year, but the year ended in a very interesting upbeat note. We refreshed all of our technology products and I don't think you have fully understood what happened to Oracle last year, if you don't understand what we have delivered in terms of proving the E-Business Suite concept throughout the year and getting lots and lots of references. We are no longer selling an interesting idea. We have proven the success of the product with the best-managed companies in the world, and we have a fabulous reference base and this gives us a really wonderful competitive position to go and compete in the marketplace for applications going forward. In technology of the where we are already the leader, we introduced a new version database and a new version of the application server. The application server, we are coming from behind, but the application servers business is a very interesting business, because now really it is based on a new standard. Both IBM and BEA, the two contenders in the application server business were saying how fast their versions of Java, which is the language of the application server, how fast their server-based Java ran. Well, our new version of the application server announced a couple of weeks ago; we were the first company to actually publish competitive benchmarks. We didn't make claims about how fast we ran. We actually ran industry standard benchmarks and published the results and guess what, IBM claimed it to be twice as fast as BEA, and IBM benchmark. But, we ran the benchmark and found out that IBM was confused. They were actually half as fast as BEA. We happened to be 6 times faster than IBM and 3 times faster than BEA. Our numbers were so good that Bill Coleman, the CEO of BEA thought we made them up and said so publicly.

After his team had downloaded our benchmarks and had downloaded our software and tested our results, he changed his statement and said and I quote, Bill Coleman said, "performance doesn't matter." The whole reason that customers chose Java over Microsoft dot Net was that they wanted standards. They wanted multiple vendors competing on the basis of price and performance, and we are normally cheaper, much cheaper than IBM and a little bit cheaper than BEA. We are also much faster and if you look at the chat rooms of the programmers, the buzz about Oracle's new application server and what's called the J2EE environment or J2EE implementation, they are over the moon. We are blowing the doors off BEA and IBM. We think we are going to make huge gains in the application server business because we are a lot faster than the competitors. The database where we are dominant and have been dominant for sometime, we introduced again the most important new release as Jeff mentioned since release 7, almost a decade ago. Release 9i again I think, a couple of the analyst quoted me as being bombastic in my statements about 9i. I basically said it's game, set, and match. It is over in the database business. We can now do things that IBM and Microsoft currently dream off. What we can do simply stated is we can take a group of inexpensive machines like personal computers, a bunch of separate-to-separate PC servers or inexpensive Unix servers and we can make that group of machines look like one big computer for any Oracle application, that's right. So, SAP is to have SAP run out of big HP machine or big IBM machine, you could now run it faster and more reliably on a group of PC servers or midsize Unix servers.

IBM clusters and Microsoft clusters may both claim to have clusters and indeed they do have what they call clusters. The only problem with the Microsoft cluster is in the DB2 cluster on Unix and Windows is they don't run SAP and they don't deny this by the way. I asked IBM, do you have a Unix cluster that run the SAP application, the answer is no. What about Siebel, the answer would be no. We run Siebel, we run SAP, what about PeopleSoft, the answer would be no. IBM can't run it. Microsoft can't run it. The maximum number of computers you can run an IBM computer that you can use to run Siebel or SAP or PeopleSoft or any application is one on Unix and Windows. Let me emphasize on Unix and Windows. It turns out IBM has two totally different databases. Their mainframe database actually has clustering that's very similar for Oracle 9i. Unfortunately, a totally different development team built the Unix and Windows version of the IBM database. Again, I have started to bore you with technical details, but the Unix and Windows database from IBM happens to use an architecture called shared nothing. The IBM mainframe database use an architecture called shared disk, so does Oracle 9i. It turns out to be IBM mainframe database and Oracle 9i can run any application. The IBM database on Unix and Windows run no application, big difference. Their clusters are foe, they are worthless, they run nothing but benchmarks, and we are much faster and more reliable. We run all your applications, they run none of your applications. Ask the question carefully, though IBM will say, "Oh, no, we have clusters that run real applications, that's only on mainframes, that's only on mainframes." How fast is Oracle compared to IBM DB2? Well, when IBM wanted to demonstrate how fast their hardware was, they chose Oracle.

IBM hardware guys won't use DB2 to run benchmarks on their fastest hardware, and if IBM hardware won't chose DB2 and instead chose Oracle, why should anyone else choose DB2. Now, there is a lot of buzz about pricing of our database and we use a different metric. We use a pricing based on the speed of microprocessors. We no longer do that. We have the same processor based pricing as Microsoft and IBM. So, it is very easy to compare our price to IBM. One more comment, we bundle a lot of our features into our core database technology. IBM tends to charge separately for all of their pieces. We are much cheaper than IBM when you look at how they charge. Yes, they are 22,000 a processor and we're 40,000 a processor for the basic database. But, if you look at all the things like workflow, and other things that we include in our basic price, and you see how IBM prices those separately, we're about 65% cheaper than IBM on database. We are much faster, much more reliable, much less expensive. We've changed our metric so that people can compare the prices very easily. This is the Holy Grail of the database business. We now can actually turn any Oracle application that you have currently running, and we can make it fault-tolerant by running on our real application clusters. Economy, reliability, and performance advantages over IBM and Microsoft in database business, position us beautifully going into this New Year. We have never had a more competitive set of products, in the application server and the database server, and now proven technology with our release of 11i E-Business Suite.

Operator, we are ready for questions.

Thank-you. Our question and answer session will be conducted electronically today. If you would like to ask a question, simply press the '*' key, followed by the digit '1' on your telephone keypad. We will proceed in the order that you signal us. We do ask that you limit yourself to one question per queue, and we will pause for just a moment to assemble our roster. And our first question will come from Jim Moore.

Yeah. Hi! Good job on the quarter. I was wondering, Larry, if you could comment on clustering. How important is it today to customers, and how else do you differentiate against the distributed DB2 product?

Well, clustering is worthless to customer today, because clustering has just been a benchmark special for the last decade. Keep in mind Oracle clustering, IBM clustering, and Microsoft clustering was only used to run benchmarks, because less than 1% of our customers actually use clustering. So, the reason that no one uses clustering, except on IBM mainframes, is that you had to modify your application to take advantage of it. Now, with real application clusters, any Oracle application runs, all you have to do is just plug in another machine, it keeps running. So, you want it to run faster, plug in another machine, you don't have to change your application at all. You want to run fault tolerantly, for example, all mission critical applications on Oracle have a machine sitting idly by called the Hot Backup. That machine no longer sits idly by. That machine now takes up part of the load. You no longer have to use Hot; you have an idle machine just sitting there, in case your primary machine breaks. How do IBM and Microsoft respond? Well, buy an extra machine and have it sit there idle. IBM cannot run any application, that's Unix and Windows. They can run no applications on clusters. We think we are going to go from less than 1% or 1/10th of 1% of our customers using clusters that virtually all of our application customers, and half of our other customers using cluster standard. You can now buy 2 or 3 inexpensive machines rather than one really expensive machine, to get performance, and then there is no single point of failure. So it is economical, not only does clustering improve your performance, not only does clustering eliminate a single point of failure, dramatically improving your reliability. It improves your economy by letting you buy a small number of inexpensive machines, rather than one really big expensive machine, to run your application. So, there is overwhelming reason to use clusters, if you don't have to modify your application.

What Oracle's done with 9i, we are the first database other than IBM on mainframe, the real DB2, not the fake DB2 on Windows and Unix, which used to be called UDB, by the way, till IBM changed the name to confuse the innocent. We're the first company that can do that with Unix machines and Windows machines. So, we think it is a very, very big deal. Again, it makes your applications fault-tolerant. It makes your application much faster and it costs you less to run.

You said third party application companies like SAP and Siebel and even Oracle with the 11i, are those applications ready to run the clustering and also on the pricing...

Let me, let me just answer your question. SAP was part of our announcement, but you have to got to understand, SAP doesn't have to do anything to make their application run on clusters. Siebel doesn't have to do anything to make their application run on clusters. All applications run on our clusters, because the application doesn't have to be changed, that's the beauty of this, versus what IBM and Microsoft have. So, in fact, every customer written application, any application that runs on Oracle on one computer, now runs on Oracle clusters with no changes whatsoever. It applies to every single Oracle application in the world. SAP, in fact, one of the things we demonstrated with SAP as part of our announcement, is that we now run four times faster on Oracle than on IBM, and that we run SAP applications four times faster than IBM. We published that benchmark and those results are at SAP's website. So, we are now four times faster on SAP, but even more important, we are fault-tolerant . There is no single point of failure. So, we are hundreds of times more reliable. Think of it, do you remember tandem fault tolerance; you had to build by special computers and write your customer applications to achieve fault tolerance? Clusters make every single Oracle application fault-tolerant. This is not well understood. You need to go to the chat rooms, and look at what the programmers are saying. This is a very big deal, a very, very big deal. All of a sudden, every Oracle application is fault-tolerant. No IBM applications are fault-tolerant. No Microsoft applications are fault-tolerant. None.

It seems like IBM was really using the pricing against you over the last six months, and you looked to be, maybe, 50% less expensive, at least from a list price perspective. Do you think that's going to stop IBM's pressure on the market share there?

Well again, we've actually gained market share this last year. IBM is a great marketing machine, I give them credit for marketing, and they created some tremendous buzz around our pricing. We're five, six, ten times more expensive than DB2, and I mean, you could find a scenario where we are six times faster, but it would be extremely unlikely. In fact, we think, we are cheaper and we have published real numbers. IBM would never publish numbers. They would just make these statements like they are twice as fast as the BEA. I mean, IBM has been amazing this last year. I mean, they said they are twice as fast as the BEA application server, and they published the benchmark, and when we ran it we found it to be half as fast as the BEA. They are making these claims with no numbers. Let's see them publish some numbers. They don't publish numbers. They don't publish benchmarks. They don't publish anything. The only benchmark that I know they have published is this one cluster benchmark. It is always these cluster benchmarks, which run no real applications. So, IBM did create a lot of buzz around pricing. That is, they did not create a buzz around performance or any of the other stuff. I think we have cleared all that up. It's very easy to compare Oracle prices with IBM prices. We are cheaper. We are faster. We are more reliable, questions.

Well, thanks a lot.

I think we need to move to the next question.

Certainly. Our next question will come from Gretchen Teagarden.

Great. Thanks. Larry, we had a webcast with you guys about a month ago, and regarding the application Suite, you had mentioned that you had used the word mea culpa, and you were just saying how you didn't think that maybe the Suite approach was the right approach than more of an integrated slow approach, would be the right approach. Are your comments today a change in strategy? Are you going to be going back to more of the Suite sale approach?

No. No Gretchen. The issue is, again, just like IBM used price against us in marketing, what our competitors would say regarding applications. Oracle expects you to throw out everything you have, and put in the whole E-Business Suite all at once, and that's a marketing pitch. So, we have never said that. But people continue, that is what they say, Oracle says throw out everything and put in the Oracle E-Business Suite. We have never ever said that. And I think, we have got to do a better job of being clear of what we mean about the E-Business Suite. You don't have to install all the Suite at once. You can do, what a number of our customers have done, for example if you do purchase, do Internet procurement, through payables. You can automate all of the entire procurement business flow, and you can plug that in first. We don't expect any of our large customers to throw everything out at once, and completely put in the E-Business Suite, it's not possible. We never said that. What I am trying to say was not [________________] oh! Boy, we made a big mistake, what we did, we weren't clear enough in our marketing message. Yes, we have a whole of the E-Business Suite, and you should put it the whole E-Business Suite, but you don't have to do it all at once. You can just pick up flow like order to cash, you can pick up a flow, procure to pay, and we have completely automated that business flow, or you don't have to put a whole Suite in at once. Our competitors are being disingenuous by saying, you have got try to use this Suite message against us, by saying Oracle expects you to throw out everything and put in the whole Suite at once. Nonsense, we never said that, you can install this flow by flow.

Okay great, and one another quick question. We have heard examples with large corporate websites, where they originally had their databases in a distributed environment. We have heard examples from them, using some of those back on to the mainframe, are you seeing an example of that kind of a renewed interest in databases on the mainframe.

Mainframe, you mean like IBM mainframes, like real mainframes or eframes?

Like real mainframes.

No. Actually, I started my career designing real mainframes at Amdocs. Real mainframes are unbelievably expensive, unbelievably difficult to program, and what people don't realize very, very slow. So, the reason IBM will not publish any mainframe benchmarks at all. You will find their TPCC on an IBM mainframe, is that mainframes are extremely slow. They are very difficult to program, very expensive, and extremely slow, I am not going into reasons why, but no, we have seen with the exception of a few companies in Germany, where IBM has remained very, very strong. We see very little interest in mainframes other than how fast we can get rid of them.

Great. Okay, thanks.

Our next question will come from Chris Shilakes.

Thanks. Just wondering given that the applications performed dramatically different between the US and Europe. What was the main issue in the difference, was it that the quality issues were better known in the US and became the factors [_______________] or were there other issues that caused Europe to execute better than the US in the application business.

I think, it is 2 issues, Chuck. Really it's a comparison issue. Of course, our growth over the last quarter has, there are 2 things you have to consider, how well we did in this quarter, and how well we did last quarter. So, Europe had a very easy comparison, and the US had a very difficult comparison. And of course the economy in the US has slowed much more precipitously than in Europe. I think, those were the 2 issues. Easy comparisons and different economies

Was the dotcom issue a factor?

Yeah, sure. Dotcom and Telecom. Our 2 biggest markets, a year ago, were the Telecom industry and the Dotcom industry, and those markets have, what's the right word, played it down.

Anyway quantifying the impact. In other words, kind of inclusive of dotcom's, what the applications would look like.

Jeff.

No, I haven't through the America's in total, I didn't go and try to figure out the applications versus database because clearly it affected both. The impact of total license was about 11 points. So, there was a 11 points of negative impact on the growth rate.

I would like to comment about the core quality problems in the first year of the E-Business Suite, which submits you the proposition that given the size and complexity of this new version of applications, we have made it through this transition much more gracefully than SAP and introducing our [_______________] mySAP, or introducing PeopleSoft ACE. We have actually got live customers, real customers in one year. To have all of these customers live and running their businesses on a Suite of this size and complexity has never been done before in the history of application business. So, I would say that 2 things that are unique about our 11i, one is the comprehensive nature, the size of the new offering. And the other is how quickly in one year, we have got giant companies live and had their money in this business on this Suite. I would like to have any analyst to try go back and find in history a transition that was accomplished in 12 months.

And then on the real applications clusters, one of the market research firms came out with the statement advising their clients to kind of wait a year saying that it had a short data cycle only once a year kind of status. From your perspective are there enough customers, who have picked the cost hopefully in production, where it is not issue in terms of quality and things are ready to go?

I mean, I don't know what analyst is questioning the quality of our database product. In fact, the preposterous, let tell me tell you how preposterous that is. The single most important thing about application clusters, real application clusters is it make your application so much more reliable architecturally. So, what are they waiting for. It immediately makes your application more reliable and it tolerate failures. So, why would you wait. I mean, it is a very funny thing to wait on. It's a little bit saying, gee, this fire extinguisher hasn't been thoroughly tested, so, let's go with no fire extinguisher for the first year because the fire extinguisher will be get better over that 12 month period. Again, I would love to know the name of the analyst who said that . Perhaps I heard some pretty bizarre things about real application clusters. Real application clusters, clusters we have been working for 10 years. We have numerous accounts. They have tested it and are using it, it is again, we encourage people to use it right away because it makes your application immediately and much more reliable. I do not know why anyone would wait.

Last question on the application server. Just a time frame and kind of when only your own applications were supported, and secondly kind of maybe a sum of how you are going in the marketing and going to track developers to compete with BEA.

Again, I believe the next version of application support, the full new version of our application server. The best way to understand how excited people were about our application server, was get into the chat rooms and talk to programmers and just see what programmers are saying about it. Don't believe me in terms of the benchmarks that we published, see all the different peoples who have downloaded the application server. Over a million downloads since our announcement in Java 1, over a million downloads. Major customers have already taken applications of the WebSphere in BEA and find that they run much, much faster on our application server. So, again, the great way, if I were an analyst the way I would tried to gather intelligence is I wouldn't look and see what other analysts were saying, I would see what programmers were saying, because the programmers are actually trying it and using it, and they are pretty blown away. The other thing, this is an interesting community and with regards to the Java community. The Java community never liked the idea of being locked in to anyone vendor. The reason they chose Java and Microsoft dot Net is that they didn't want to be held captive by any one vendor. I think, they kind of perceive BEA as trying to be the Microsoft to Java, and there are not entirely thrilled with being held captive by one vendor and they liked the idea of us competing with the BEA, and since we have fastest software and more reliable software right now than BEA. They are going to exercise their freedom to choose. These are not Microsoft captives, these are members of the free and standard based Internet world.

Thank-you and good job on the quarter in a tough environment.

Thank-you.

As a reminder, please limit yourself to one question per queue. We will now here form Neil Herman.

Hi! guys. Could you just give us kind of general sense as to by geographic region, what your sense is as to when things may begin to pick up, and what kind of anecdotal evidence or underlying things that you're seeing out there gives you the sense that hopefully, we should see that pick up in the US by the end of the year and if you just address the other major ERP's as well.

Ya, I think my comments initially were geared more towards the US because that is where we saw the slowness start and because it is our biggest region. So, we have 3 people who manage the US force and each one of the individuals is more bullish, starting off this quarter than they were last. Their pipelines are better, they feel good about the product position, but just the general aggregate demand, I think is better and it is biggest single thing. Europe is on lag affects. So, it started slowing down a bit and again we just spoke to the guy, [_______________] and his comments was, gee, I think things are a bit softer, but I certainly don't see the kind of slowdown that we saw in US at this point. So, his assumption is because he started slowing down later than the US, it will take him a couple of quarters and so, he is not looking for easy turn around, but nor is he looking for a sharper slowdown either. So, I think we can do okay in Europe. I don't think it's going to be the big negative that US was and he doesn't have the same dotcom. He has got a limited dotcom population, but nothing to the magnitude US had and then Asia is kind of mix, but overall it has held up. If you cut to the currency and look at real constant growth, it has done well all last year and their outlook for this quarter is looking good, despite what you hear about Japan and these places still doing reasonably well. So, I think hopefully, we are not going to see a big slowdown in Asia, and the US will come out of this quicker in terms of real up trend and then Europe will follow back as well.

If you were to take a longer term view trying to exclude the economic cycles here, what do you think the longer term range growth is in the database business and the application business.

I think the database business is 15%-20% over a long-term. It is not in unreasonable position as we have been gaining share over the several years and including this past year contrary to what IBM or Microsoft says, we actually gained share points by going with the numbers you have right here, and I expect we will continue to gain share with real application clusters. We think we will dramatically gain share and now for the first time also by their mainframes. So, I think there is going to be a big shift not only will information grow this is the beginning of the information age not the end of it. More and more information will be stored on computers, but also you will see more and more data migrating offered by their mainframes, now that we have this clustering technology. It gives you reliability and high performance. Application's business, I don't see no reason why we can't get that to a 50%-100% growth in the application business.

And then one quick last one and that is, I know you have change your database pricing. What's been the early response from customers and what do you think the impact is going to be taking a longer term look at your database business from that pricing change.

The customers generally liked the change, they changed the system that we had before, again didn't allow them to do. When they upgraded their computer, if you had a 4 processor machine running Oracle with 400 MHz microprocessor and you change it to a 4 processor machine with 700 MHz microprocessor you actually had to pay Oracle more money and just keeping track of all of this was more complicated than simply counting processors. So we decided to go with a much simpler metric. It is easier for our customers. It is easier to do comparison shopping. You can argue that it was a price decrease, but actually all we really did was reset prices to where they were a year ago, that's all we did. I have actually seen analyst's report saying with a huge price reduction, I don't see an analyst report. First one I saw this morning says that it was actually a price increase. It was neither, it was actually just a reset to last year, maybe the slight reduction 10%-20% something like that, but we think it will have no impact whatsoever in terms of our revenues. We expect normal circumstances to grow our database business 15%-20% and we think these pricing won't impact that one way or the other.

Thanks a lot.

Our next question will come from Rob Tholemeier.

Hi! Thanks a lot. Just looking at the number of customers that you have running applications and their application revenue in the pipeline of 3500, do you think that there is a possibility that there could be some negative shelfware, places where the applications have been deployed and you have not collected. Let me ask one other question quickly on pricing. If your price has so many features, but is slightly more expensive than IBM have you considered doing additional unbundlings, so that you have a nominal sort of "I got your price", that's lower than the IBM price as a way of getting people started and knowing that though immediately by the upgrades.

No actually IBM has just done that with Webster. They have now completely unbundled Webster and they just fell it piece by piece. We think that's a very bad idea. It makes it very difficult for us to test our products. We sell our products in a variety of permutations and different combination of products. It is very hard for us to test the product to make sure it is reliable. Also it is very confusing because if an application developer is developing software on top of our product. If our product is really nothing more than some number of 30 separate components, you don't know what's there. So, we have made the decision that all versions of Oracle are the same, have the same features. The only difference by and large so that an application will run on the standard edition that same application will run on enterprise edition and what we charge extra for primarily is more performance and more reliability. There are few exceptions to that. We do have a few functional extensions. We have introduced integrated OLAP with its version of the database and integrated data mining, our latest version of database. It is interesting to note that there our OLAP is 2.5 times less expensive than IBM, and our data mining is 3 times less expensive than IBM, and ours is integrated with the database and their is a separate products and in fact, their OLAP product is really good, they are just reselling [_______________]. It is not integrated as a separate product, we have integration. We think we have enough separate products that we can go back to our installed base and sell them additional value and get paid for that additional value, but we don't want to so thoroughly autotomize our product, but Oracle ceases to have a meaning, just like Webster. Webster has a meaning. I think Webster is something like 60 separate products. There is no such thing as Webster, you can't buy it and we don't want that to happen to Oracle.

What about the issue of with this many live customers in this years pipeline, the revenue number seems to be kind of light given the number of our customers that are out there. Do you think there are people they are maybe running in our production, but development licenses?

No, I think what we have done is again is we have been very cautious about doing lot's of big deals at big discounts and again, I know there was some prior report, I read saying we really to make Q4, we borrowed from Q1, just the opposite was true. We have said no to a number of deals in Q4. One of the reason why our Q1 pipeline looks little better than some people might think is when a large customers said, hey, we are rolling out this big application. We want to buy all we need for the next 3 years we will you give you a big check right now and just gives us a 95% discount. We said no, thanks it's very nice of you, but keep your money and pay us as you need the software. We are not doing that anymore and by the way that had impact in Q4. We could have sold a lot more software in Q4.

One more think, the pipeline looks much better than for the application looking forward.

I would like to repeat exactly what Jeff Henley, we are kind of cautiously optimistic, but in a couple of our US units, let me just give you just facts here. We have unprecedentedly high pipeline coverage. In other words, the pipeline is the 5 times the size of what has been forecasted in one our units, 4 times in another of our units. Never had pipeline coverage like that. That's a reason why we are optimistic, but we are also being very, very cautious. This is uncharted territory.

Thanks.

Thank-you and our next question will come Wendell Laidley.

Yeah congratulations. Two questions. Could you provide more granularity on the application business. Specifically, do you think you have a critical mass now of reference customers such that those businesses can reaccelerate and secondly, on the margins side, how much of the margin expansion going forward will come from operating efficiencies as opposed to growth in license revenue and other gross margin efficiencies. Thanks.

Yeah, I think we have in terms of references, we are literally you can look at our advertising for the E-Business Suite, we just talked about for a year. We saved a billion dollars, Oracle saved a billion dollars in E-Business Suite. We talked about the concept of the Suite being complete for the first time during everything. It really was a conceptual sell and the primary reference was Oracle for the first year. We have gone from that to saying our preeminent reference is General Electric. Our preeminent reference is Wachovia, Hewlett Packard, Ford, and Sony, and Sony implemented a complete supply chain automation in 45 days. You want to compare that 45 days implementation at a company of the size of Sony with I2 implementation. You want to compare a 5-1/2 month GE Power implementation with an SAP implementation. In both cases no software modification. So, we are through talking about how much, well I guess we still talk about how much Oracle saves you [________________] offer, but that's not going to be our primary emphasis. We are going to talk about how quickly our customers implemented this. How the best companies in the world Ford, Wachovia, General Electric, Sony, Boeing, etcetera are using this Suite to run their business today. How they put it in record time. How they are able to put it in without making any software modification. How these projects were delivered ahead of time and under budget, really it's an unprecedented thing to happen in the application business. So, it is a whole different sales pitch and we have already talked to out people saying that the only thing we are going to advertise are references, that's it. We are going on a pure reference basis. It is no longer a concept sale. It is a reference sale. That's a huge difference in one year.

Can you talk about specific breakdown within the applications business? What's coming from ERP, supply chain, CRM etc?

Again, we sell the E-Business Suite, we stopped doing that a while ago, and we sell the entire E-Business Suite. And, we have some spectacular CRM successes in Bell South. I don't know about a 10,000 agent automation project of Siebel. I don't know where Siebel can show you that they have got their live in 30 countries like Hewlett Packard in sales force automation. Siebel doesn't even have their Internet system yet I know they claim to have had it a couple of years ago, but now they've just said they had it a couple of years ago, now they have just said they will have it at the end of this year. Well, one of those two times they must have been mistaken. It is either going to be done or was done. I am not going to even ask them about them. Interesting. They don't even have an Internet system yet. They are doing very well in the market. They are going to make hire most of their products. Their products are not integrated. Those pieces don't fit together, and they are not on the Internet. We now have solid references. They've gotten away saying Oracle has their references, Oracle levered the big pitch against 11i, quality problems in their references. Well, look at GE, that's how they run their business, works at Ford, works at Wachovia, works at HP, works at Sony, works at Boeing, works at Bell South.

Okay. And the margins question?

I think you will see margin expansion both ways. If the economy comes back to normal, if things go back, you will see us expanding our sales, but I don't think you will see us expanding our expenses. We don't think it's necessary for us to grow expenses to grow sales. In fact, we can get more savings to be had, by using the Internet. So, we expect, we have two avenues where we can improve margins. We can continue to cut expenses. We think there is still fat in this company. There are still ways to improve our processes, move out across the Internet and do more with fewer people and fewer dollars by using technology, by using the Internet. The other is, we think our products are fabulously competitive across the board in sales, in borrowing, in economics, disaster, sales should go up. Then, we will see expansion based both on top line acceleration and further expense cuts.

Congrats on a very spectacular quarter.

We will take one more question operator.

Thank-you. Our final question will come from Rick Sherlund.

Thanks. I wonder if you could just talk about the sale cycle on the application side versus database, and Larry if you could also talk a bit about what you seeing on the competitive front? PeopleSoft had, in your release. What are you seeing from SAP and Siebel?

Well let's see. I'm sorry Rick, but .........

First was sale cycle related.

Okay. Clearly the applications have a much longer sales cycle than either the application server or the database. And, in fact, I think, one of the things that were most interesting, one of the interesting wildcards out there, is that we think the application server might be a very short sales cycle. We have never had a product with this short a sales cycle. So, we are very curious about that. It is very easy to verify our benchmark number. It is very easy to move an application from BEA or WebSphere, to the Oracle application server, it is very simple to do. We think that is going to be an exceptionally short sales cycle, much shorter than database, so we have got this new product that has a very short sales cycle on it. Obviously, database is what the database is, and then there is the sales cycle for applications, which was longer than it should have been because of lack of references for 11i. Again, it was really a concept sell. Hey, this sounds great, all the pieces are there. You don't have a lot of references, but I love the idea, and you are using it internally, that sounds pretty cool. So, the sale that we've made is directly on 11i, we are based on this notion, this notion of a complete integrated E-Business Suite that help make Oracle successful. Now, we've got tons and tons of references that provide a lot of comfort. So, we think will allow us to shorten the sale cycle for applications going forward. We are at it again, doing primarily reference selling and demonstration selling going forward, as opposed to concept selling. So, we think that will speed up the sales cycle for applications. The reason that we are able to complete this transition so quickly, the interesting thing, the answer I gave to Chuck, one year later we have got so many customers live, you know, HP, Ford, you know blah, blah, blah, all the guys, Wachovia. TOSCO the largest steel company in the world live and it is in one year. The reason that we are able to do this, is we can do these implementations very fast because they require no software modifications and a minimum to no systems integration.

So, you would think in a down economic cycle, we can cost a tiny, putting in our applications cost a lot less than putting in Siebel, or putting in PeopleSoft, or putting in SAP or anybody else. We don't think that is well understood yet. But again, how could we have gotten all of these customers loyal, an interesting question. How do we get these giant companies live in such a short period of time? Well GE is the perfect example. They did not do any systems integration. They did not do any software modification. We did systems integration in a lot of places, but 85% of our implementations are now running without any software modifications at all. That allows us to get them in very quickly at a very low cost. Typically, I know, we're bidding these things. We're bidding a cost of implementation equal to the cost of license. This compares with Siebel, which is seven to ten times the cost of the license. And as people begin to grasp, you know IBM made a big stink about it. It is either cheaper than our database. Well, talk about being cheaper than Siebel, we are 1/3rd or 1/4th the cost of Siebel or 1/5th the cost of SAP, if you count the implementation cost. For us, we get installed very quickly. Find a Siebel implementation where they put a company like HP live in every country in which they do business for sales force automation in less than a year. Find anything like that, and, with no software modifications. So, again, we think this new idea, this E-Business Suite idea, implementing software without modification. Now that we've got references, now that we can site this, now that we are willing to say 'Hey! if you give us 10 million of your license, we will do the whole implementation for a second 10 million.'

Larry, do you think that the weakness in the quarter is more a function of a tough year over your comparison versus anything unusual going on in the application space versus the database space?

Again, I think, it is a tough comparison, tough economic climate, and the fact that we were, after Q4 we were selling our applications based on the concept rather than based on references, and so I think all three of those things conspired to slowdown our applications business. Going forward, so I know you're saying how much can you extrapolate to other application companies? Well, clearly the tough economic climate, you can extrapolate. We think our position is much stronger in applications going forward because of this rather phenomenal reference base. Not just the applications are running, we got them running in less than a year in all cases, and in 85% of the cases we did it without any software modifications. It's really a wholly new approach to the applications business. If you just own an application, you save five to ten times more for the labor to put it in. Now, the cost of the license and the cost of the labor are about the same.

And SAP and PeopleSoft?

We see SAP, certainly a resurgence in Europe in SAP. Less so over in United States. And we see PeopleSoft has better of resurgence in HR, but no place else, absolutely no place else. And in fact, one of the interesting things is that we are having a very hard time finding any PeopleSoft customers live anywhere. Though PeopleSoft [________________], oh this is another thing, let me just comment about PeopleSoft [________________], what PeopleSoft is saying "Gee! They are more Internet standard than we are. That's a big ditch, because they use HTML on the client, and we use HTML and Java. What is true? Oracle uses a combination of HTML and Java to build our applications. PeopleSoft uses a combination of HTML, and their famous industry standard PeopleTools. So, they want to talk about HTML and the fact and punish us for using Java. We readily admit that we build our applications in a combination of Java on a server and a combination of HTML and Java on the client. PeopleSoft on the other hand use HTML, and again that's fabulous, open industry standard that everyone knows about called PeopleTools. By the way, Siebel doesn't run on the Internet really. They run a combination of Visual Basic and Siebel Tools. SAP runs ADAPT 4 and a little HTML. We are the only company that has pure Internet standard based implementations, and for PeopleSoft they want to take us on based on Internet standards, is a very interesting notion. They only want to talk about what's running on the client. They seem to forget that actually all the applications are really on the server. Nothing's on the client but a browser. So, how are you going to do anything with those applications on the server, you have to use, and again, I repeat, that industry standard, go to your bookstore and buy a copy of PeopleTools Made Easy. We use Java. And they are criticizing us for using Java. Interesting position.

Why do you see SAP getting stronger in Europe?

Again, I think, mySAP is getting a little bit more mature, mySAP was new and again it's been out for a couple of years now, so it's a little bit more credible than it was before. I think SAP has made a huge mistake by the way by partnering, first with Clarify and then with Commerce One, and a number of other partners. SAP has now, kind of adopted this best of breed approach, which we think is terribly flawed because it involves so much labor installing these pieces. Plus Commerce One technology is highly questionable, but again, the big issue here, we believe that all these pieces need to be engineered to fit together. SAP can't go out and buy a bunch of companies, or make bunch of partnerships and glue the pieces together after the pack, that's very labor intensive. Those glue joints are terribly unreliable. It's a flawed strategy. When SAP was truly a great company they built the entire ERP suite and that's what made SAP a great company. They delivered a complete integrated ERP suite and in a sense, all we've done is adopt the old SAP strategy that applies not only to the back office, but also to the front office and build all the pieces and get them all over together.

Thanks. See you next Wednesday.