甲骨文 (ORCL) 2007 Q3 法說會逐字稿

Good day, everyone, and welcome to today's Oracle Corporation quarterly conference call.

Today's conference is being recorded.

At this time, I would like to introduce the Vice President of Investor Relations for Oracle, Ms.

Krista Bessinger.

Please go ahead, ma'am.

Thank you, operator.

Good afternoon, everyone.

Welcome to Oracle's third quarter fiscal year 2007 earnings conference call.

With me on this call are Oracle Chief Executive Officer, Larry Ellison; Oracle President, Charles Phillips; and Oracle President and Chief Financial Officer, Safra Catz.

As usual, our prepared remarks will be followed by Q&A.

Before we begin, however, I'd like to remind you that today's discussion may include predictions, estimates, or other information that might be considered forward-looking.

While these forward-looking estimates represent our current judgment on what the future holds, they're subject to risks and uncertainties that could cause actual results to differ materially.

You're cautioned not to place undue reliance on these forward-looking statements, which reflect our opinions only as of the date of this presentation.

Please keep in mind that we're not obligating ourselves to revise or publicly release the results of any revision to these forward-looking statements in light of new information or future events.

Throughout today's discussion, we'll attempt to present some important factors, relating to our business that may affect our predictions.

You should also review our most recent form 10-K and form 10-Q for a more complete discussion of these factors and other risks that might affect our future results or the market price of our stock.

A PDF copy of our press release and financial tables, which include a GAAP to non-GAAP reconciliation can be viewed and downloaded on the Oracle Investor Relations Web site at www.oracle.com/investor.

So with that, I would like to turn the call over to Safra Catz for her opening comments.

Thanks, Krista.

Good afternoon, everyone, and thanks for joining us.

I'm going to first focus on our non-GAAP results for the quarter and then review guidance for Q4 and then I'll turn the call over to Larry and Charles.

As you can see, Oracle had a very strong quarter with outstanding performance across all product lines, all geographies.

We had aggressive guidance going into the quarter and we exceeded on every metric.

New software license revenue was very strong with revenue of $1.4 billion, up 27% year over year and exceeding our guidance range of 16 to 22%.

This is our fastest-growing third quarter in more than five years, with obvious market share gains across all product segments.

The quarter was very broad-based in terms of deal size and was not dependent on any unusually large deals.

I know there are rumors of megadeals in the quarter, a couple at over $100 million and those rumors are simply not true.

Even if you added up the top five deals in the quarter, you don't get to $100 million in new license revenue.

You add the top 20, you don't get to $200 million.

Technology license revenues were outstanding across all geographies, up 17% year over year.

We grew technology license revenue 15% in the Americas, 15% in EMEA, and 26% in APAC.

Applications were exceptionally strong as well, with license revenue of $423 million, up 57% year over year, excluding i-flex, Portal, MetaSolv, SPL and some other smaller acquisitions, our application new license number was $389 million, up 44%.

And even though we have now owned Siebel for over a year, we got it mid-quarter last year, so if you exclude Siebel entirely from both last year and this year, new license revenues were up 32%, still 4 times the reported growth rate of SAP.

Our applications license revenue was strong around the world and we grew applications license revenue 69% year over year in the Americas, 29% in EMEA, 89% in APAC.

Turning to product updates and support, our revenue was up 21% on a non-GAAP basis to $2.1 billion.

And to grow at 21%, we actually had the highest renewal rates in our history.

Regarding margins, Oracle continues to grow market share and profitability simultaneously.

Non-GAAP net income from operations actually grew 27% to $1.8 billion, resulting in operating margins of 39%, up modestly from a year ago despite over a half point reduction from the consolidation of i-flex.

Margins have now started to improve as we get to scale on some of the newer acquisitions, and we expect margins to benefit from this scale over the next few quarters.

Last, we grew EPS by 31% to $0.25 on a non-GAAP basis, coming in $0.03 above our guidance and well above our stated goal of 20% average EPS growth.

We've now completed 11 quarters of our five-year non-GAAP EPS growth plan of 20% per year, and we're delivering earnings growth comfortably ahead of that target.

The tax rate this quarter was positively affected by the R&D tax credit, which was both retroactive and had a new calculation basis.

As well as the change in the mix of profits between lower and higher tax jurisdictions, impacted mainly by the strength of the Euro.

In Q3, we bought back approximately 58 million shares at an average price of $17.34, spending about $1 billion.

Operating cash flow for the trailing 12 months increased $1.1 billion to $5 billion, while free cash flow increased 29%.

Now I'm going to -- if I can hold up -- turn briefly to guidance and go from there.

Because the Hyperion acquisition hasn't closed yet, today's guidance for Q4 doesn't include Hyperion, in any event, given that we don't expect the acquisition to close before late April, we don't expect Hyperion will have much impact on the fourth quarter results, and we won't be revising our guidance after the close until the Q4 announcement in June.

As you might expect, we feel very good about our prospects into our seasonally-strongest quarter, and we feel good about our momentum and our competitive position, and our ability to execute in the field with no distraction.

With that said, as you all know, last year, Q4 2006 was a blockbuster quarter, and we are up against some tough comparisons.

Last year, new software license revenues were up a record 32% in Q4, with total revenues up 22.

Our guidance is as follows.

New software license revenues are expected to be up -- excuse me -- I know you're all waiting, 5 to 15% year over year.

Total revenues expected to be up 10 to 14% year over year on a non-GAAP basis.

On a GAAP basis, 11 to 15%, non-GAAP EPS is expected to be $0.34 as compared to $0.29 last year.

GAAP EPS for the fourth quarter is expected to be $0.30, up from 24 last year.

Now this guidance assumes that the annual effective income tax rate is 28.2%, down from 30.8% in Q4 last year.

Now, if current exchange rates hold steady for the entire quarter, that will result in 2 points of positive currency impact in Q4.

As you know, currencies are likely to fluctuate, and as a result the currency impact in the quarter could be different than our guidance assumes.

Our Q4 GAAP guidance currently assumes stock option comp expense of approximately $50 million, and we still continue to expect stock compensation to reduce diluted earnings per share in all of fiscal 2007 by $0.02 to $0.03 as we've said in previous quarters.

With that I'll turn the call over to Larry for his comments.

Thank you, Safra.

Let me start by saying, I have got some prepared remarks, but let me say I'm very, very proud of this management team from top to bottom.

The company has never been in as good as shape.

We've never had a stronger suite of products, we've never had a better management team, and we've never executed so well.

I'm very proud to be a part of that team.

Okay, so Oracle's Middleware new license business grew 82% in the third quarter.

82%, and that's in stark contrast with BEA, which grew 8% in their most recent quarter.

So we're growing more than 10 times faster than BEA.

Over the trailing 12 months, Oracle's Middleware business grew on average over 60%.

That's in contrast with BEA's last year, where they grew 12%.

So that's 5 times over the last year, we're growing 5 times faster than BEA.

Oracle's Middleware business is now larger than BEA's Middleware business, or larger than BEA.

It took us a long time, over five years, to catch and pass BEA, but we did it.

We did it with a combination of innovations and acquisitions, and years and years of a determination and endurance, and again I'm very proud of what the Middleware team has achieved, both in development and marketing and in sales.

We're in the early days of our Linux support business, but we're off to a very solid start.

Our support service, our Linux support service is up and running well.

Dell, HP, and CDW are onboard to resell Oracle Enterprise Linux.

We've already signed a number of support contracts, some for over $0.5 million.

And Oracle has replaced Red Hat at Yahoo!

and numerous other customer sites as their support supplier, Linux support supplier.

That's extremely important.

And this is just the beginning.

We're not going to build the Linux business overnight, but we will build it.

We have the largest and best support organization in the world, and we're determined to offer our Linux customers the best support for Linux in the world.

In the applications business, we're in the middle of a battle for market share with SAP.

We like our strategy.

SAP may be the world's number one ERP company, but ERP is a slow-growing, relatively mature business.

SAP's growth strategy is to expand into ERP for smaller, mid-sized companies, with their new A1S product.

In other words -- I think that's SAP's fourth product line.

The product line they bought for very, very small companies when they acquired [Chy Gawky's] company.

They have our three, they have mySAP, and now they've got A1S.

SAP's strategy seems to be to have lots and lots of different ERP systems.

Our strategy, by the way, in contrast is with Fusion, to have one ERP system, one suite that will be available on demand that will be available for small and mid-sized companies all way to the largest company.

Very different strategy.

Today before Fusion, Oracle is a strong number two in ERP, but very importantly, we're number one and increasing our market share in the fast-growing CRM market.

CRM is extremely important, because it's not a mature marketplace.

It's growing much faster than ERP and we're gaining share.

In addition, we are expanding into industry-specific software markets.

Our strategy is to sell industry-specific software to the same large midsized companies, down to probably $100 million that we're currently selling ERP and CRM to.

We want to call on the same customers we're already calling on.

It's very expensive to suddenly go in and call on very small companies.

In fact, very small companies like Microsoft sells, has all been done through a channel.

And while we have channels that go after the small end of the mid-sized business and we have a product line, J.D.

Edwards aimed at that, really our strategy for growth is to have these industry-specific software suites and sell them to the same customers.

And I think there's a very big distinction between what we're doing and what SAP is doing.

We want to call on the same customers and sell them more value.

And rather than -- we want to move up the value chain, go on beyond ERP, ERP foundation, CRM on top of that and the industry specific software suite on top of that.

We think it is very important we target specific industries.

Our strategy is already showing results.

Our margins, as Safra mentioned earlier, are going up, not down.

SAP has said that their expansion strategy requires sacrifice in margins.

We don't believe in sacrificing margins for growth.

We think we can grow margins and grow the topline and grow share simultaneously if we have the right strategy.

Our banking and retail software businesses both had very, very strong Q3s.

I mentioned retail on the last conference call that we were expecting a very strong second half from retail, and boy did they deliver, absolutely spectacular.

And we expect good things to come from our newer vertical business units, the telecom's business unit and the utility's business unit, and the pipelines there are extremely strong.

We're very excited about these industry-specific software spaces.

So we believe in competing not just in ERP, but in CRM, and industry-specific software.

Given that strategy, we think we have a good chance to catch and pass SAP in the overall applications business.

We closed the gap and gained applications market share again this quarter.

Oracle's application new license business grew 57% in Q3.

SAP grew only 7% in their most recent quarter.

57% growth for Oracle, 7% growth for SAP.

Oracle grew with applications new license business on average 61% over the last four quarters.

SAP averaged only 10% growth over its last four quarters.

So the trailing 12 months, we're growing six times faster than SAP.

SAP is still larger than Oracle in the application business, but we're gaining on them consistently and rapidly.

I'll turn it over to Charles.

Thanks, Larry.

We had an outstanding performance from our field organization around the world, everybody did a great job.

Just a couple comments by product line.

In core database, the momentum there is partly being fueled by customers taking multiple options around the database.

So an increasingly common deployment configuration around the database is with the trifecta of Rack, Automatic Storage Management, and Enterprise Manager.

Rack is clustering of less expensive machines into grids, ASM from managing provisioning storage, EM to manage the entire environment.

We continue to extend our lead in core database performance as well.

We set three new world record benchmarks in the quarter.

We ranged from 41% to 206% faster than the competition on these benchmarks.

We also launched a new version of Enterprise Manager in the quarter, and that's a new star performer.

It was up 46% in the quarter.

As our product footprint grows within these accounts, these customers look to us as the logical provider of their management infrastructure on the presumption that we can provide a level of management for our own products that no third party can do, and that's true.

So two major enhancements with that release, we can manage more than Oracle now, we now manage other application servers and databases, networks and storage devices, and we can also proactively manage the entire Oracle stack, which means we can provision and make configuration changes based on the information collected.

Key customers in that area, Chicago Board of Options Exchange, Korea Telecoms, State of Tennessee in the quarter.

In Middleware, we had a new release as well.

10ZR3, over 1,000 new features.

That brings us up to 275 patents and we have won over 191 independent awards in the past 18 months for our Middleware products.

Our customers are soaking up these new features pretty quickly.

Nearly 85% of our Middleware customers are on the latest two releases.

All of our software application products have been certified with our Middleware.

I've mentioned to you a couple of years ago that a key requirement that we had was to get ISVs on board, and that would help us accelerate our growth.

We've done that.

We now have over 5000 ISVs, we have critical mass, we added 48 new ones just in the last quarter.

We now have 250 of the top 500 global ISVs certified on our Middleware.

Key customers in the Middleware this quarter, GE Plastics replaced webMethods for a solo deployment, in Content Management, Air Canada and Reuters.

Business intelligence more than tripled in the quarter.

We now have more products and more sales reps in our specialized sales force.

We shipped a new release as well.

We also were added to the magic quadrant from Gartner and Business Intelligence.

Finally in the applications area, we have five new releases of our ERP applications announced on one day.

So we're continuing to follow through on our applications on a limited commitment, with new releases and new innovation.

In the industry areas, as Larry mentioned, retail had a blowout quarter, up over 90% in the quarter.

Key wins such as Abercrombie & Fitch, Michaels, Home Depot Supply Chain, but we also did very well in communications.

In fact, we have two telcos in Europe who are going end to end Oracle, which means billing, provisioning with MiddleSoft, Siebel customer care, PeopleSoft financials, field service and HR, Middleware, and the Oracle database.

We're the only company that can offer a telco in a box.

We're going to replicate this in more industries.

So Q2 wins related to applications, Cisco, they purchased applications, Middleware database, and additional many other areas of management tools over a multiyear period.

Citrix Systems purchased CRM in our VI suite.

Cummings purchased 42 modules across the entire ERP suite.

That is a large win against SAP in the automotive sector, one of their key verticals.

Subaru of America bought G-Log for purchase planning and freight settlement.

Demantra, we won Mattel toys.

One fun one in the quarter was a company called Wiles.

You may not have heard of them but they're based in Germany, a fairly large company in Germany, about two blocks from SAP's headquarters.

This is a complete SAP replacement.

They had been a customer since the R2 days.

They also purchased mySAP ERP 2004 and deployed it in Germany and France and went live.

They liked our superior functionality, superior cost of ownership, and our architecture, this is a complete replacement, so that was a fun win in the quarter.

With that I'll open it up for questions to Krista.

That's great.

We have a couple of minutes for some questions.

So operator, if you could go ahead and create the queue.

Thank you, Ms.

Bessinger.

[OPERATOR INSTRUCTIONS] We'll take our first question from Heather Bellini with UBS.

Hi.

Thank you and congratulations on a very good quarter.

Safra, I was wondering if you could help us out with two questions.

One, what do you think was behind the strength in new license sales this past quarter, and how much of it do you think was related to changes in execution that you put in place post the November results?

Then the second thing would be, many have been nervous about enterprise spending trends given some of the missteps from some of the big software companies over the past few quarters.

Can you give us your view on the macroenvironment right now?

Thank you.

Sure.

Charles, you should add in on either question, actually.

The reality is the anomaly is not this quarter at all, it's really last quarter.

As we told you, we had a blockbuster Q4 in '06, and Q1 was again fantastic.

Q2, I think you basically saw that we felt we had some execution issues out in the field, really focused mostly around North America and Charles and Keith have put in place sort of basically everyone focusing back on what they need to be doing.

And they're really just back on track.

So today isn't really the announcement of the anomaly, it was really last quarter when we talked about what went down in Q2.

Charles, do you want to comment on that part?

Yes.

That's what we've felt.

Last quarter, what we said is that our destiny was in our control.

The guys focused, did a great job and came through around the world, but North America especially.

And then as far as the macro situation, I have to tell you, Heather, we have so much momentum for so many reasons, as we've become so identified with a number of vertical industries.

We're really the guy to talk to on a lot of these, and so far for us, things look very good.

They've looked good all quarter, but they continue to look good.

We're very, very upbeat here.

Obviously the macro economy could change and we could see something different, but right now we feel we have an enormous amount of momentum, even though we're going into a Q4 that's going to be very hard to top that last year Q4.

Great.

Thank you very much.

We'll go next to Brent Thill with Citigroup.

Thanks, good afternoon.

The Middleware business, up 82% showed a very nice acceleration.

Can you give us a sense of what you're seeing particularly in that business?

You mentioned the competitive wins against BEA, but what are the other key drivers and how sustainable do you think some of the trajectories of the growth rates you've seen in the last couple quarters are?

I think we decided a while ago to compete in the Middleware business, not by selling a lot of separate components, but by selling an integrated suite.

That was a very controversial decision when we made it at that time that all of our different -- like everybody else, we had lots of different components that make up a Middleware suite.

In fact, IBM WebSphere, which is probably the leader in Middleware, I think we're bigger than BEA, but we're not bigger than IBM.

They sell lots and lots of separate components.

If you look at the list of products that are underneath WebSphere, it's a long, long list of products that get added up and then reported as the WebSphere total.

We thought the right strategy was to take all of our Middleware components and have a modern, integrated suite.

All the pieces play together and all of them support industry standards.

In terms of a portal, there are industry standards in the portal.

BEA went out and bought Plumtree, which was a leading portal supplier, but that product did not conform to industry standards.

It was a nonstandard-based product.

And we decided to focus on two things.

All the pieces fit together in an integrated suite and industry standards, and we think that's playing very well.

IBM's a long list of stuff that's not really integrated.

A lof it is standards based, but the pieces don't play together.

We have the unique strategy in Middleware, it's working very, very well.

We think our Middleware business will continue to grow very rapidly, and at some point, I hope we're reporting we're twice as large as BEA in Middleware and I think that's really going to happen.

Great, thank you.

And we'll go next to Jason Maynard with Credit Suisse.

Hi, guys.

Congratulations on the quarter.

I've got two questions for you.

First for Safra or Charles, on the Q4 guidance since you did have that great showing last year, how would you describe your pipeline and close rate assumptions at this point compared to a year ago?

And the second question for Larry regarding vertical market apps.

Given the success you've had so far in retail and banking, does this entice you to go into other market segments outside of some the areas that you've already identified?

Well, let's -- I'll answer your first question, but obviously Charles can just add in.

Obviously pipelines are very big.

We had a huge Q4 last year, but obviously the pipelines this year are bigger, significantly bigger.

We have assumed modestly lower close rates than we had last year, just always trying to be cautious, even though the truth was, last year's close rates weren't outrageously high or anything like that, or one or the other, so the reality is pipelines are very, very big, but pipelines don't tell the whole story and we're going to have to close just an enormous amount of business.

I mean, North America alone rounding around about $1 billion of new license sales, just in the 50 states and Canada.

So that's a lot of new license revenue to sell and -- but we're very, very upbeat.

We've got the pipeline supported and then some, and we've used very reasonably conservative close rates.

The second -- your second question considering that our existing verticals are doing so well, are we tempted to do more?

The answer is, of course, yes.

With the explanation that we really tend to buy industry leaders, leading companies.

When we bought i-flex, they are the number one company for automating retail banks.

So we like to buy category leaders when we go into this business.

As we learned from Jack Welch, being number one in our marketplace -- number one in a market is a huge advantage, much easier to make money when you're number one then when you're number two or number three.

So we want to get stronger in the industries where we're already strong, and if we can enter new industries in the number one position and that opportunity affords itself, we'll exploit that opportunity.

Thank you very much.

We'll go next to Kirk Materne with Banc of America.

Thank you very much, and congratulations on the quarter.

My question would be I guess for Charles or Larry.

Charles, you talked a lot about the vertical apps having a lot to do with the success in that area.

Can you just try to qualify that in terms of, where are you having success?

Is it upselling, are you getting customers to take on more apps, meaning, are the ASPs trending higher in that group, or are you bringing on new customers that were not necessarily comfortable dealing with some of the smaller vendors you acquired?

Any more color around that would be great.

Definitely the deal count is up in all the vertical areas.

So as soon as we buy one of these companies, there's always a segment of the market that did not feel comfortable buying them, or they couldn't do the localizations and porting to specific countries or support in certain geographies.

All that we made happen fairly quickly.

We're also delivering some of the integration.

So we promise to productize some of the integrations between building, for instance, and telecommunications to Siebel, and those are shipping now.

So all those things certainly help, but you're right, the size of the deals are creeping up and the drag effect on once we rim the industry application on the Middleware and database and Portal, you name it all, we're starting to figure out how to optimize that process.

That's why we're getting the telco in a box type deals.

We're partnering together all our sales forces around the areas where we need to for a particular customer, and they are feeling like Oracle has pretty much everything they need.

We are certainly transcending to the next level with a lot of these customers and it's just changing our relationship with them.

We know more about them.

The second thing that's happening is, we did a better job hiring over the last nine months.

So we had more sales capacity.

The right heads in the right place, so with that in place, with the right product line and the momentum that we have, people want to do business with the winner, and then contrast to three years ago when they had a lot of questions about our strategy, now they believe in it and are totally consistent with it, and they are voting with their dollars, they like it.

Great.

Thanks very much.

We'll go next to Adam Holt with JPMorgan.

Good afternoon and I also echo the congratulations.

I had two quick questions.

The first is on the applications business.

You've said historically that given the large maintenance base database, product cycles are less important to license revenue.

How would you talk about the number of recent application releases that you had, either in terms of the impact on the quarter or what you think will be the impact going forward?

And my second question is on the operating margin.

Safra, did your comments about expansion, did that include the impact of Hyperion, and how should we think about timing there?

Thanks.

I'll answer the first question.

All the different application releases we just had.

I think it was important in a sense that when we acquired PeopleSoft, we acquired Siebel.

A lot of these customers didn't get their application support from Oracle.

They got it from PeopleSoft, they got it from Siebel.

The commitments that were made, were made by PeopleSoft and Siebel.

We made some commitments to these customers, we made commitments to the PeopleSoft customers to continue improving the PeopleSoft line of products and provide them the highest quality of support we were capable of providing.

And we came out of it with a new PeopleSoft release, release 9, and we got an extremely high renewal rate on PeopleSoft base, actually higher than PeopleSoft had when they were a stand-alone company.

The new release is going extremely well, the upgrade is very smooth, smoother than the upgrades for prior PeopleSoft releases when PeopleSoft was an independent company.

It's our job as we acquire these customers along with these companies to demonstrate to those customers that the acquisition was a good thing, that the products will be improved at a faster rate, the quality of improvement will be better than before and the quality of support will have also improved.

So that these customers are comfortable in dealing with Oracle and these customers are comfortable continue buying thing from Oracle.

In that sense, this is extremely -- these releases, these commitments that we made to improve J.D.

Edwards, and I think it was the first new release for some of these J.D.

Edwards products for a long, long, long time.

I think that community is very happy with the release.

The PeopleSoft community is very happy with the release.

The Siebel people and of course the e-business suite people are very happy.

Even though we're doing Fusion, we've talked a lot about Fusion, it doesn't mean we're not going to continue the existing product lines and keep all those commitments and all of those promises that we made in the past.

So I think that's why we had record level renewal rates that Safra referred to, and if you look at our customer satisfaction surveys that we do constantly, they've never been as high as they are right now.

That's really an important indicator for us in terms of buying, because most of the selling we do is into existing Oracle customers.

The majority, existing customers buying more.

If they're not happy, if they don't trust us as a supplier, that's a very difficult road to go down.

That they are happy, they do trust us as a supplier, they're very comfortable, I think some of these customers that we acquired the company, they're very comfortable with working with us and they're buying more, as Charles said very colorfully, they're voting with their dollars and it showed during the quarter.

Safra, are you going to talk about the other part of the question?

What was it?

Operating margins and how Hyperion might impact that?

The comment is actually a lot more global than just Hyperion.

The reality is we're not giving guidance including Hyperion right now, but as a general statement.

We've bought a lot of smaller things that are not at scale.

That's one of the reasons that our margins haven't been even shooting up higher than they're now going, and that's because we've been -- we invest in them for a while before they're at scale and then the revenue comes in and then all the marginal revenue is very, very profitable.

Hyperion, we would also expect to improve margins once we're stabilized and probably much more quickly than some of these smaller things, because it is already at scale.

But it will to some extent depend on how much additional sales force coverage we want, because we think we can be rewarded with increasing revenues and accelerating revenues.

But overall, we'd expect Hyperion to improve margins rather quickly.

Terrific, thank you.

We'll go next to John DiFucci with Bear Stearns.

Hi.

Question for Safra, on the guidance.

Safra, given the license guidance, the midpoint of that, considering that maintenance is very predictable and then given your total revenue guidance.

It implies a lot less growth in what I'd characterize as lower margin services business.

Am I thinking about that right?

Well, remember, also that our numbers include quite a bit from i-flex, which is generally lower margins, but they are growing rather quickly, so there's, and they continue to grow quickly within us, and yet we still overcompensate with improving our margins.

So overall our own consulting business is not growing very fast intentionally, because that's not a business that we want to grow fast.

We want to grow the license business as quickly as possible.

Okay, okay, thanks.

Just a quick follow-up for Charles.

As Safra said, Charles, across just all the geographies and all the product areas, there was meaningful growth.

One area, though, in particular in EMEA on a constant currency basis, the database grew at about 6%, which isn't bad growth, but relative to the other regions and other product areas, it just didn't appear to keep up.

Just curious, do you have any commentary on that?

Is there anything just given that there's other companies in EMEA, just trying to figure out.

Do you see any macro issues in EMEA?

I can't say it's a new macro issue.

Obviously that's a tougher applications market than it is in the U.S.

for us.

However, we are optimistic about some of the localizations we're putting in place.

So the more localizations you have, the more countries you can sell in.

And we are expanding pretty rapidly in some of the emerging markets, like Russia and the Middle East, which are going pretty quickly.

So we do see the opportunity to accelerate the growth there in the applications business as these other emerging markets come on.

And it's basically in-line with the database growth, constant currency database growth over the last few years.

It's moved around a little bit, but it's been around 6% or so, a little higher.

It depends often times on the comparisons quarter to quarter.

Okay, thank you.

Sure.

We'll now go to Kash Rangan with Merrill Lynch.

Hi.

Thank you very much.

Nice quarter.

A couple of questions.

One, Safra for you, since you've anniversaried the acquisitions, the 5 to 15% is more of a true apples to apples comp.

Should we think of that being roughly your license growth expectation -- not give you to guidance talk for Q1, but longer term if you didn't do any acquisitions, is that the kind of license revenue growth expectation that we should be thinking about?

And I have a follow-up question.

It's too hard to call the future.

Things are changing very, very quickly.

We've built a lot of momentum in a number of factors.

Any particular quarter is really very much related to really the comparison from the year before and our level of conservatism at that time when we look at the economy overall.

So as we go into a number of these vertical markets, they are actually growing significantly faster, and as they become a larger and larger percentage of our growth -- of our overall business, it will impact our growth rate.

So, in any particular quarter, it's probably not a good necessary metric to extrapolate from one point.

As I mentioned, Q1 will right away have Hyperion in it, which obviously Q4 really won't be affected by Hyperion significantly.

Got it.

Just looking at the guidance again, you definitely outperformed in a pretty big way for the February quarter, so should we think of your what seemed to be conservative outlook for the May quarter as more a function of the February quarter having come in at least above -- significantly above people's expectations.

Is that why you're choosing to have a more conservative view of the May quarter, or is it that you're really starting to look and plan beyond this and start to manage the upcoming Q1 and not get the numbers be too tough from a sequential basis from the May quarter to the August quarter.

Let me comment.

I think they're two things.

One is, we have a very tough comparison, because we had a blowout -- I mean, any growth rate, as you know, is a comparison between two numbers.

What we did in Q4 last year versus what we expect to do in Q4 this year.

Last year we had an absolute blowout Q4, so it's a very tough comparison.

That's number one.

And as Safra said earlier, we're trying to be conservative.

Yes.

Let me add a third thing, which is, in terms of extrapolating, does that mean we're going to grow the size of 15% indefinitely if we don't make acquisitions?

The answer is I don't think so, because we have, if you analyze our business, we have a couple of slow-growing businesses, a very large database business, which is, whose maintenance base is growing quite nicely and is extremely profitable, and there's a relatively slow-growing ERP business, but those are two slower-growing businesses, but they're both growing.

We have a very fast-growing Middleware business that's getting larger.

As it gets larger, it will move the needle more and more.

We have a fast-growing CRM business, and we have an astonishingly fast-growing suite of businesses in vertical applications.

So as the relative weights of those five businesses change, in other words, Middleware gets to be larger and larger compared with database that's faster growing, that's going to affect our overall growth rates.

I think you have to take all of these things into consideration, and Q4 has to be looked at in isolation and not a point you want to extrapolate from.

Very tough comparison, and we're trying to be a little bit conservative with our forecast.

And Kash, I think you asked whether we're trying to manage Q4 as to have a good Q1.

We don't have that kind of power.

When our customers want to buy, we sell to them.

We don't fool around.

Anyone who would like to give us money for our software, we're taking it and open for business.

I'd like to announce we have time, Kash, unless you have a follow-up, Operator, we have time for one last question.

We'll take our last question from Israel Hernandez with Lehman Brothers.

Good afternoon, and congratulations to the team.

I have a quick question on the health of CRM business.

You alluded to some market share gains regarding CRM, can you talk about the momentum you're seeing in the marketplace from a pipeline creation perspective and what have you seen from customers now that you've owned the business -- Siebel for about four quarters or so?

Are you seeing a big increase in pipeline?

The pipeline is growing globally, even in Europe.

We are seeing that increase.

The new addition is our CRM On Demand business which is also growing very strongly in bookings, and we'll be talking about that, I think, in an event later this month, but that business is taking off as well, so we can present a very unique proposition to the customer, a lot of them want a

We can present a very unique proposition to a customer, a lot of them want a mixed environment, where there may be some regions or some business units they want on demand and other ones they want on premise and we can integrate it on the back end for them.

We're the only ones that can do that.

I think also the Siebel brand name is just magical, anything to do with CRM.

People understand that in terms of best practices and the leading thinking around customer processes, that was Siebel, and we built on that.

Even in SAP accounts, even if they decide further administrative applications, they tend to go with Siebel for CRM.

Thank you.

That concludes the question-and-answer session today.

At this time, Ms.

Bessinger, I would like to turn the conference back over to you for any additional or closing remarks.

Great.

Thank you, everyone, for participating in today's call.

A telephone replay will be available for 24 hours and that replay number is 719-457-0820 with pass code 7473378.

You can also access the webcast replay on the Oracle Investor Relations' Web site, and that replay will be available through the close of market on March 27.

Thank you.

With that, I'll turn it back to the operator to close.

Ladies and gentlemen, that does conclude today's call.

Thank you for your participation.

You may now disconnect.