甲骨文 (ORCL) 2010 Q1 法說會逐字稿

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  • Operator

  • Good day, everyone, and welcome to today's Oracle Corporation first quarter fiscal year 2010 conference call.

  • Today's conference is being recorded.

  • At this time, I would like to introduce Ken Bond, Vice President of Investor Relations of Oracle.

  • Please go ahead, sir.

  • Ken Bond - VP, IR

  • Thank you, Kristin.

  • Good afternoon, everyone, and welcome to Oracle's first quarter fiscal year 2010 earnings conference call.

  • I'm Ken Bond, Vice President, Investor Relations, and with us on the call today are Chief Executive Officer, Larry Ellison, President, Safra Catz, President, Charles Phillips, Executive Vice President and Chief Financial Officer, Jeff Epstein.

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

  • While these forward-looking statements represent our current judgment on what the future holds, these statements are also subject to the risks and uncertainties that may cause actual results to differ materially from the statements being made today.

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

  • As a result we caution you against placing undue reliance on these forward-looking statements which reflect our opinion only as of today.

  • And as a reminder we are not obligating ourselves to revise or publicly release the results of any revision of these forward-looking statements in light of new information or future events.

  • We would encourage you to review our most recent reports on Forms 10-K and 10-Q and any applicable amendments for a complete discussion of these factors and other risks that may cause our future results or the market price of our stock.

  • A copy of the press release and financial tables which includes a GAAP to non-GAAP reconciliation and other supplemental financial information can be viewed and downloaded from our website at www.oracle.com/investor.

  • We'll begin with a few prepared remarks, but before we do, take questions from the audience, we want to remind everybody we will only be discussing Oracle's Q1 fiscal year 2010 results.

  • With that I'd like to turn the call over to Jeff Epstein for his opening remarks.

  • Jeff?

  • Jeff Epstein - EVP, CFO

  • Thank you, Ken.

  • Good afternoon, everyone, and thank you for joining us.

  • I will review our non-GAAP financial results, focusing on constant currency growth rates unless otherwise stated.

  • First, a note about foreign exchange rate movements.

  • In June, we told you that using then current exchange rates would reduce our Q1 revenue growth by 5 points compared to constant currency.

  • During the first quarter, the US dollar strengthened again compared to last Q1 further reducing our international revenues, expenses and profits when measured in US dollars.

  • As a result, currency movements reduced new license revenues by 3%, total revenues by 5%, net income by 4%, and earnings per share by 5% or $0.02 per share compared to Q1 of last year.

  • Now let's review the income statement.

  • In the first quarter, our new software license revenues were $1.0 billion, down 14% in constant currency and down 17% in US dollars.

  • The Americas declined 5%, EMEA was down 20% and Asia declined 22%.

  • Technology new license revenues were $711 million, down 19% in constant currency and down 22% in US dollars.

  • The Americas declined 11%, EMEA was down 26% and Asia declined 22%.

  • Applications new license revenues were $317 million, unchanged from last year on constant currency basis, and down 4% in US dollars.

  • The Americas grew by 6%.

  • EMEA was up 3% and Asia declined 23%.

  • Our software license updates and product support revenues were $3.1 billion, up 8% in constant currency and up 3% in US dollars.

  • These revenues are annual fees customers pay to receive updated versions of and enhancements to their existing products.

  • Our services revenues were $909 million, down 18% in constant currency and down 22% in US dollars.

  • Our total revenues were $5.1 billion, down 2% in constant currency and down 7% in US dollars.

  • Operating income was $2.3 billion, up 11% in constant currency and up 7% in US dollars.

  • Our non-GAAP operating margin grew by 570 basis points to 46% in US dollars.

  • This is the highest Q1 operating margin in Oracle's history as a public company and further demonstrates the success of our operating model.

  • Our tax rate was 28.0%, which is below our guidance of 29% due largely to lower than expected interest income which is generally taxed in jurisdictions with higher rates.

  • Our Q1 non-GAAP earnings per share were $0.30, at the mid point of our EPS guidance range of $0.29 to $0.31.

  • This was up 8% in constant currency and up 3% in US dollars.

  • Our non-GAAP earnings per share would have been $0.02 higher had foreign exchange rates remained the same as they were in Q1 of last year.

  • In Q1, we repurchased 11.4 million shares at an average price of $21.24 per share for a total of $243 million.

  • As we have previously discussed, the rate of our stock buyback will fluctuate each quarter taking into account alternative uses for our cash and our stock price.

  • Turning to the balance sheet we have $20.6 billion in cash and investments.

  • The increase resulted largely from the $4.5 billion debt offering completed early in the quarter and $3.7 billion of operating cash flow generated this quarter.

  • Our day sales outstanding improved again this quarter from 54 days last year to 46 days this year, a testament to the quality of our receivables, the quality of our customers, and the effectiveness of our collection efforts as well as from product mix and timing benefits.

  • We generated $8.5 billion in free cash flow during the last four quarters growing 14% over the same period last year.

  • This is the highest free cash flow result in Oracle history.

  • Now, I'll turn the call over to Safra.

  • Safra Catz - President

  • Thanks, Jeff.

  • We're pleased with our Q1 results.

  • By substantially improving operating margins we were able to increase Q1 earnings per share even though revenues decreased slightly.

  • We had slower than usual growth in database middleware license revenue in Europe and APAC.

  • This is a result of two factors, a very tough year-over-year comparison, and the impact of some of our software company resellers, most notably SAP, who is selling less database because its applications business is down 40%.

  • Oracle continues to grow faster than our competitors.

  • In the quarter we also increased GAAP and non-GAAP operating income by $209 million and $144 million respectively over last year's first quarter and we delivered the highest Q1 non-GAAP operating margin in our history, 46%, substantially higher operating margins than our peers.

  • I want you to understand that though keeping expenses in check is part of our margin story, the real contributor is that as license updates and product support are a larger percentage of the quarter as they were in this quarter, the operating margin percentage goes up.

  • This is clear as our software license updates and product support revenues which were over $3.1 billion this quarter continued to grow off their very large base.

  • Our customer renewal rates and satisfaction levels continue at record highs.

  • The currency headwind was reduced significantly over Q4, though still reduced new software license and software license updates and product support growth rates by 3 and 5 percentage points respectively.

  • Now let me turn to guidance.

  • For the coming quarter, using current exchange rates, there will be 5% positive currency effect on the license growth rate and a 4% positive effect on total revenue growth rates, a positive 5% effect on net income growth rate, and a positive $0.02 per share effect on earnings.

  • Now, we believe that the guidance I'm giving today is realistic given our tough year-ago comparison, as our license revenues continued to grow while the world economy struggled.

  • Specifically, I want to remind you that last year in Q2, while the market environment was very poor, many of our competitors shrank significantly while we continued to grow.

  • Last year, our new licenses grew 5% in constant currency and software updates and product support grew 20% in constant currency.

  • As a result, unlike our peers, we have a difficult comparison in Q2 this year while they have very easy ones.

  • I want to emphasize that our pipelines continue to grow and the close rates I am assuming are significantly more conservative than typical Q2 close rates.

  • Now, my guidance today does not include any assumptions from our pending acquisition of Sun Microsystems.

  • I have no additional information regarding the timing of the deal as the closing of the transaction is conditioned on getting the necessary regulatory approval.

  • We are still quite confident that we will increase operating income earnings by $1.5 billion in the first full year after the close of the merger.

  • We will give much more detail after the merger closes.

  • In addition, Q2, we have extra interest expense amounting to a bit less than $0.01 a share for the quarter, since we did a bond offering to pay for the transaction and it has not closed yet.

  • With that, our guidance for Q2 is as follows, at current exchange rates, non-GAAP EPS is expected to be between $0.35 and $0.36, up from $0.34 last year, and GAAP EPS for the second quarter is expected to be $0.26 to $0.27, up from $0.25 last year.

  • Total non-GAAP revenue is expected to range from positive 2% to negative 1% year-over-year at current exchange rates, and negative 2% to negative 5% in constant currency.

  • Total GAAP revenue is expected to range from positive 3% to flat year-over-year at current exchange rates and negative 1% to negative 4% in constant currency.

  • New software license revenues and other are expected to range from negative 10% to flat at current exchange rates and negative 15% to negative 5% in constant currency.

  • This guidance assumes a tax rate of 28.5% for Q2 versus 28% in Q1 and this could turn out differently based on many factors.

  • As you know, currencies are likely to fluctuate, and as a result the currency impact in Q2 could be different than our guidance assumes.

  • With that, I'll turn it over to Larry.

  • Larry Ellison - CEO

  • Thank you, Safra.

  • Everyone knows that last year, Oracle introduced its first hardware product, the Exadata, database machine.

  • Version 1 of Exadata was designed for data warehousing, and our customer experience and we have a lot of Exadata customers, our customer experience is that Exadata runs an Oracle data warehouse someplace between 10 and 50 times faster than the Oracle database running on a conventional computer from IBM, Hewlett Packard or somebody else, so that's a huge difference.

  • I mean our very first hardware product delivered a minimum of 10 times speed up in data warehousing applications all the way to a 50 times speed up.

  • And when we announced that product up until yesterday, Exadata Version 1 was the world's fastest machine for data warehousing.

  • Yesterday, Oracle and Sun introduced Exadata Version 2, hardware by Sun, software by Oracle.

  • Exadata Version 2 is at least twice as fast as Exadata Version 1 for data warehousing.

  • Even more importantly, Exadata's Version 2 also runs OLTP, or online transaction processing applications.

  • There are only two classes of application for databases, OLTP, and data warehousing, and Exadata does them both.

  • No other database machine runs online transaction processing except Exadata.

  • The Oracle/Sun announcement included faster CPUs by 80%, doubling the speed of our Infiniband internal network, faster discs with double the capacity, plus most importantly, a memory hierarchy made up of 400 gigabytes of DRAM and five terabytes of Flash storage, Sun FlashFire technology in a single Exadata cabinet.

  • Now, our OLTP performance when you want to compare it -- when you compare it with the fastest OLTP machine out there, IBM's fastest computer, two Exadata cabinets are as fast as IBM's fastest computer, at less than one quarter the price.

  • So -- and eight Exadata cabinets are four times faster than IBM's fastest OLTP machine, so take your pick.

  • Either for the same dollars, you can get four time the performance using Oracle Exadata versus IBM, or if you want to save the money for less than a quarter of the price you can get the same performance as IBM -- IBM's fastest machine for OLTP.

  • In data warehousing, the advantage is even larger.

  • In data warehousing I mentioned earlier that Oracle Exadata Version 2 is at least twice as fast as Exadata Version 1, the previous world record holder for data warehousing performance.

  • Oracle Exadata, I should say Sun Oracle Exadata Version 2 is five times faster than Teradata, five times faster than [nanpisa] and 20 times faster than IBM's fastest computer for data warehousing.

  • So, we have spectacular data warehousing performance, world record level OLTP performance, all in the same computer, and unlike the earlier versions of Exadata -- Version 1 of Exadata -- we have models starting as low as $100,000, and going all the way up to multimillion dollar systems, we're price competitive in terms of performance, we're price competitive in terms of disk capacity.

  • Exadata Version 2 simply stated is by far the fastest and most cost effective machine in the world for both data warehousing and online transaction processing.

  • We're very excited about the Sun Oracle partnership.

  • With that, I'll turn it over to Charles.

  • Charles Phillips - President

  • Thanks, Larry.

  • Larry mentioned some of the new technologies around Exadata.

  • I think what we saw in the quarter was some of the growth in databases in terms of size and of driving the demand for that, and let me give you a few examples of customers we work with in the quarter.

  • AC Nielsen for instance we deployed a 45 terabyte (inaudible), Adidas 13 terabytes, Australian Bureau of Statistics 250 terabytes, and of course some of our high end ones that you probably heard of in the past, AT&T, 250 terabytes, Yahoo 700 terabytes, just gives you an idea of the size of the databases that are out there and how they're growing and that's driving the need for greater throughput.

  • We had some important new wins in the quarter as well, some end-to-end standardization decisions at Matsui Securities, Rent-A-Center, University of Kansas and EMC.

  • In terms of new products in the database area the key announcement a couple weeks ago was Oracle Database 11g release 2.

  • The reason that's important it introduces the concept of server pools which can dynamically assign resources to work loads and more importantly an intelligent installer for RAC.

  • So it is 40% fewer steps to install our clustering product.

  • That is a key add-on product, key option for us.

  • It's always been difficult to install to get up and running and now we've resolved that issue and makes it applicable for a lot more customers.

  • In the middleware area, we announced in July the 11g version of our middleware suite, and why that's important is that's the first full complete integration of the BEA products, and so we had a big launch over 40 cities worldwide, 44 new ISVs have signed up, 95 applications have been adopted, we trained over 2,700 consultants on it.

  • So we're continuing to roll that out as we speak.

  • That's important because it gives us a cross-selling opportunity into the BEA installed base and we landed those deals at Vanderbilt University, China Mobile Telecom, Scottish government, Alcatel and Carnegie Mellon on that basis.

  • Moving on to some other key areas of middleware wins, Hyperion Enterprise Performance Management, we had a big win at Liz Claiborne, Business Intelligence, Weatherford and Patterson.

  • The reason I mention those is we're starting to get wins around our BI apps.

  • What that means is not only do we have the BI platform, but we've developed a series of applications or dashboards around certain business processes and applications like supply chain analytics, and those are driving wins on top of our applications and we get the BI platform as well.

  • In the application area, we actually did pretty well in the scheme of the entire market.

  • Our main competitor was down 40% last quarter, and if you look at how we did our industry applications actually grew in double digit and that's not including the drag of supporting technology and middleware products.

  • Key wins in the quarter around ERP, cost fertilizers, replacement of an old ERP system, China Unicom and CRM on premise, good wins at Amway, Green Mountain Energy, Savings Bank of Russia.

  • Good quarter in CRM On Demand, we got selected for Hitachi Data Systems, McGraw Hill, Agilysys and West Side Banking Corporation.

  • Two quarters ago Larry mentioned Siemens which was a big win of 20,000 users, and did an update call with them last week just to see how the rollout was going.

  • That rollout was supposed to be over three and a half years.

  • As of last week we already had 9,000 up and running ahead of schedule.

  • Key wins in Demantra, [JD Irvin], Toshiba, that's advanced supply chain planning, and our retail GBU, we had a good win at METRO Cash & Carry, very important win.

  • METRO is the fourth largest retailer in the world and they're based in Germany, was head-to-head against SAP, they will be using our retail suite against an SAP back end, so a very good proof point on how well we're doing in retail.

  • Additional wins at [Sunletter] and Magazine Luiza and Primavera Project Management, [andecision] at BG Group, Financial Services GBU, a good win at Oversea-Chinese Banking Corp., they are one of the top three banks in Singapore and they are standardizing on our products for anti-money laundering.

  • In the communications area we had a good win at Vodacom, that's a Vodafone affiliate.

  • We signed a large ULA with Vodafone [end-to-end] all of our applications, including our (inaudible) applications last quarter and this is an affiliate taking advantage of that ULA.

  • And in taxing utilities GBU, we won the largest utility in Russia and more important we had a go live on the tax side for the first time at Kentucky for the coal tax; this is our new market.

  • It's important for other states and jurisdictions to see that.

  • We're expecting a go live at the Dutch Tax Authority by the end of the year, that should break open that market hopefully.

  • With that I'll turn it back over to Ken for questions.

  • Ken Bond - VP, IR

  • Thank you, Charles.

  • Operator, we would like to open the call for questions, please.

  • Operator

  • (Operator Instructions).

  • Also, we ask that you please limit yourself to one question today.

  • (Operator Instructions).

  • And we'll take our first question from John DiFucci with JPMorgan.

  • John DiFucci - Analyst

  • Thank you.

  • It looks like things were a little bit lighter than you expected in the license line this quarter.

  • Can you talk a little bit about the linearity in the quarter, was it typical linearity?

  • And then if you could, I know it's early, only a couple weeks into this quarter, but what the sort of momentum was from the last quarter into the first couple weeks here?

  • Safra Catz - President

  • Sure.

  • Hi, there.

  • Basically, the linearity was actually very typical.

  • The biggest part of the lightness as I said was that our software ISVs, we suffered as they sold less of their applications they drag less database with them.

  • As far as Q2, I think we're pretty well calibrated.

  • I think we feel actually very good.

  • I think it will be obviously a significantly better quarter than last quarter and you can see that in the guidance, so I think we actually have some very good momentum starting the quarter which is actually in many ways typical because it's not the summer.

  • So we're very -- we remain very upbeat.

  • John DiFucci - Analyst

  • Thank you.

  • Ken Bond - VP, IR

  • Next question, operator?

  • Operator

  • We'll take our next question from Sarah Friar with Goldman Sachs.

  • Sarah Friar - Analyst

  • Great.

  • Thanks a lot.

  • Safra, can I ask you on the sustainability of the margin improvements, clearly in an improving environment we should start to see license revenue as a percentage of total begin to increase again.

  • Do you still think you can put up those types of year-over-year improvements as the environment improves and clearly the maintenance of the portion starts to go down?

  • Safra Catz - President

  • Well, there are two things.

  • One is the maintenance is a portion in different quarters isn't as dramatic, the maintenance base which is existing customers who want the newest version of the software without having to rebuy the whole license again, that base continues to grow, period.

  • So that's obviously one piece.

  • The other thing is just the general leverage of our business, and that is our regular revenues do increase and faster than our expenses increase because it's a business in which scale is a huge advantage.

  • I mean, last year of course we increased 300 plus basis points over the year and though this quarter we increased 500 plus basis points, I wouldn't expect that every quarter, but we do expect margins to continue to improve year-over-year.

  • Operator

  • We'll take our next question from Adam Holt with Morgan Stanley.

  • Adam Holt - Analyst

  • Great.

  • Thank you.

  • You all have two significant releases on the middleware and the database side that have just hit the marketplace.

  • Can you talk about what you think the potential revenue impact is?

  • And then secondly, with the Sun deal getting pushed out a little bit I don't know how much you can say about this, but what can you do over the next couple quarters to continue to move the integration process down the field?

  • Thanks.

  • Safra Catz - President

  • I don't know who wants to cover that.

  • I can cover the Sun piece.

  • Obviously we continue to do integration planning, that's what we're allowed to do, and Sun historically was a very big partner of Oracle's generally, and so the Exadata Version 2 announcement yesterday is a perfect example of things we can do together at arms length which I think benefit our customers and both companies very well.

  • So we get a better sense of the Sun business and we continue to be able to do what we can at arms length.

  • Charles Phillips - President

  • I'll grab the one on the products.

  • Yes.

  • We had a new version of our middleware which actually is -- we brought in a number of middleware companies obviously over the years and this new version of our middleware is the result of those teams that we acquired rewriting their applications, their middleware components rather, so that all the components now work as a completely integrated suite.

  • And so all of the technology we've acquired is now thoroughly integrated into a unified suite of middleware and we think this gives us a huge advantage over our primary middleware competitor which is IBM.

  • And we moved over the years from kind of an (inaudible) middleware where we were five, six or seven to the leader in middleware right now, and we expect to grow our middleware share against IBM very very rapidly due to the fact that we have a much better product menu.

  • And the new release of our middleware is -- really puts some distance between us and IBM on the technology front in middleware.

  • We've always -- for a very long time we've had the best enterprise database in the world and 11R2, again, increases our technology advantage over our primary competitor which is IBM.

  • And I expect we'll continue to take share from IBM, especially as applications continue to move off of mainframe computers and on to open systems, large scale Unix systems and Linux clusters.

  • So we think we're well positioned to compete effectively against IBM in the software infrastructure market.

  • Operator

  • We'll take our next question from Heather Bellini with ISI.

  • Heather Bellini - Analyst

  • Hi, thanks, good afternoon, everybody.

  • Safra, I was wondering if you could talk a little bit about what you saw in Europe last quarter.

  • I know August is always a tough quarter there, but I was just wondering if you saw trends worsen as the quarter went on, or are you starting to see as you exited, the trend starting to improve a little bit?

  • Thank you.

  • Safra Catz - President

  • Well there's a couple things.

  • As you know, August, the summer in Europe is always not great.

  • Though last year we actually had a very very good summer and so it made the comparison tough.

  • We do actually start to see some of the economies in Europe improve a little bit in just our overall outlook and expectation, so -- but we still have some very tough comparisons.

  • But nothing is like the summer is in Europe, and especially after last year where we had a very unusually robust summer, so this will be an improvement and we do actually see the economies little by little starting to lighten up, which is a good thing.

  • Operator

  • We'll take our next question from Joel Fishbein with Lazard Capital.

  • Joel Fishbein - Analyst

  • Hi, Safra and Charles.

  • Quick question on the apps side of the business.

  • You had a great quarter there, particularly looks like strength in the Americas.

  • Could you just give us a little color on what's going on there?

  • That would be helpful.

  • Charles Phillips - President

  • I think we've definitely taken share from SAP in the Americas and even in Europe, to some extent.

  • They don't have a vertical strategy, that was up in strong double digits, that drags along some of [our] other applications in infrastructure as well.

  • And so I just think a lot of things we've been telling you over the last year or so are coming to fruition, a lot of the integrations we mentioned are shipping now so they aren't things we were just talking about.

  • People can actually buy off shelf integrations.

  • CRM had a very good quarter both on premise and On Demand, and so our expertise there continues to pay off.

  • Operator

  • And we'll take our final question from Kash Rangan with Merrill Lynch.

  • Kash Rangan - Analyst

  • Hi.

  • Thank you very much.

  • Looks like your commentary on guidance going into the November quarter is quite positive.

  • We are starting to see some indicators turn here and there so that's a good thing.

  • And also just as a note, SAP's Q4 license revenues are usually up a lot, so I wish you were able to get a slice of the database business in your November quarter.

  • But coming to the question part of my rant here, really want to drill into EMEA and Asia-Pac on the technology side, maybe Safra or Charles or whomever, if you could comment on how tightly the pipeline has been scrubbed to come up with your forecast, and to what degree do you think you're derisking the forecast in those two segments, particularly as it relates to tech, and if you can just give us some comfort and color around that area that will be great.

  • That's it for me.

  • Thanks.

  • Charles Phillips - President

  • Trust me, no one is sticking their neck out on the forecast in any region right now, so I think the pipelines have been scrubbed and they're real deals, we'll just have to see what the close rates turn out to be.

  • Safra Catz - President

  • Yes, the pipelines are actually growing.

  • I think the guys are a little bit timid in their expectation setting here with us, but the forecast continues to grow, so -- which is great.

  • So to the extent that they close even a reasonable percentage we'll be significantly better off.

  • Okay.

  • Operator

  • This will conclude today's question and answer session.

  • I'd like to turn the conference back over to Mr.

  • Bond for any additional remarks.

  • Ken Bond - VP, IR

  • Thank you, Kristin.

  • A telephonic replay of this conference call will be available for 24 hours.

  • The replay number is 888-203-1112 or 719-457-0820 and the passcode is 6663145.

  • Also a webcast replay will be available through the close of market on September 23rd and can be found on our website at www.oracle.com/investor.

  • Please call the Investor Relations department with any follow-up questions from this call and we look forward to speaking with you.

  • Thank you all for joining us on today's conference call, and with that I'll turn the call back to the operator for closing.

  • Operator

  • Thank you.

  • This will conclude today's conference and we thank you for your participation.