甲骨文 (ORCL) 2010 Q4 法說會逐字稿

Good day, everyone, and welcome to the Oracle Corporation fourth-quarter, fiscal-year 2010 conference call. As a reminder, today's conference is being recorded. At this time I would like to introduce Ken Bond, Vice President of investor relations, Oracle. Please go ahead, sir.

Thank you, operator. Good afternoon, everyone, and welcome to Oracle's fourth-quarter and fiscal-year 2010 earnings conference call. I'm Ken Bond, Vice President, Investor Relations. With us on the call today are Chief Executive Officer, Larry Ellison; President, Safra Catz; President, Charles Phillips; 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 risks and uncertainties that may cause actual results to differ materially from statements being made today.

Throughout today's discussion we will attempt to present some important factors relating to our business, which may potentially affect those forward-looking statements. We 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 affect our future results or the market price of our stock. As a result, we caution you against placing undue reliance on these forward-looking statements, which reflect our opinion only as of today. As a reminder we are not obligating ourselves to revise or publicly release any revisions to these forward-looking statements in light of new information or future events. A copy of the press release and financial tables, which includes a GAAP to non-GAAP reconciliation and other supplementary financial information, can be viewed and downloaded from our investor relations website. We'll begin the call with a few prepared remarks before taking questions from the audience.

With that I would like to turn the call over to Jeff Epstein for his opening remarks. Jeff?

Thank you, Ken. Good afternoon, everyone, and thank you for joining us. I will review our non-GAAP financial results, focusing on US dollar growth rate unless otherwise stated. This quarter foreign exchange rates were not much of a factor in our overall results compared to our guidance of a 3% benefit to new license revenue and a 4% benefit to total revenue. Even with the currency tailwind being less than anticipated, we were at the high end of our guidance range for total revenue and we beat our guidance ranges for new license revenue and EPS with record earnings per share this quarter. On a constant dollar basis we beat our guidance ranges for new license revenue, total revenue and earnings per share. In short, Q4 was an excellent quarter for Oracle.

In the fourth quarter new software license revenues were $3.1 billion, up 14%. The Americas grew 28%, EMEA was down 3% in US dollars and up 4% in constant dollars, and Asia was up 15%. Our results continue to underscore the strength, balance and diversities of our business and the quarter was not dependent on any unusually large deals. Technology new license revenues were $2.3 billion, up 18%, as the Americas grew 34%, EMEA was down 1% in US dollars and up 6% in constant dollars, and Asia was up 19%. Applications new license revenues were $855 million, up 6% from last year. The Americas grew 16%, EMEA was down 7% and Asia was up 2%. Our software license updates and product support revenues were $3.5 billion, up 13% from last year. Customer support attachment and renewal rates continue at near record levels. Revenues from our hardware systems products were $1.2 billion while revenues from hardware systems support were $688 million. Our services revenues were $1.1 billion, up 4%, as we continue to manage this business to profitable margins. Our total revenues were $9.6 billion, up 40% from last year. Non-GAAP operating income was $4 .4 billion, up 26%. The non-GAAP operating margin was 46% for the quarter.

Our tax rate for the fourth quarter was 27.3% as we saw some one-time benefits to our tax rate. Our Q4 non-GAAP earnings per share were $0.60, $0.04 above the high end of our EPS guidance range of $0.52 to $0.56. Earnings per share were up 30% from last year. In Q4, we repurchased 10 million shares at an average price of $24.94 per share for a total of $250 million. For the full year we repurchased 43.3 million shares at an average price of $22.94 per share for a total of $993 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.

Now turning briefly to fiscal 2010 full-year results, new software license revenues were $7.5 billion, up 6% for the year. The Americas were up 15%, EMEA down 5%, and Asia grew 4%. Technology new license revenues were $5.4 billion, up 6%, while applications new license revenues were $2.1 billion, also up 6%. Software license updates and product support revenues totaled $13.2 billion, up 10%. Our total revenues were $27 billion, up 15%. Non-GAAP operating income was $12.5 billion, up 15%, and non-GAAP operating margin was 46%. Our fiscal 2010 non-GAAP earnings per share were $1.67, up 16% from last year.

Turning to the balance sheet, we have $18.5 billion in cash and investments. Our day sales outstanding improved again to 53 days, compared to 58 days last year, and is a testament to the quality of our receivables, the quality of our customers and the effectiveness of our collection efforts. Finally, we generated $8.5 billion in free cash flow during the last four quarters, up 9% from last year.

Now I'll turn the call over to Safra.

Thanks, Jeff. I'll briefly comment on our non-GAAP results for Q4, I'll then review guidance for Q1 and turn the call over to Larry. Obviously we're very pleased with our Q4 results and with our outstanding performance throughout the year. Our business is extremely healthy, with substantial strength in database, middleware (inaudible) and hardware. Our tech business, highlighted by database, was spectacular this quarter with growth of 18%, including 34% growth in the Americas. Our applications business was also strong with 5% growth over the last 12 months on a constant dollar basis versus a negative 24% for SAP's four most recent quarters. Sun hardware systems revenue came in well. Taking into account the fact that we've already ended Sun's refilling of other companies' products, which had historically accounted for hundreds of millions of dollars a year in sales, this quarter we saw sales growth for Sun hardware products. In addition, our estimate for the Sun business contribution to operating income comes in at over $400 million for our first full quarter after the merger. This compares with a loss in Sun's quarter ending June of last year when Sun was an independent company.

Now to get to that number we've done some allocations for the quarter, and because a lot of our back office and software R&D and software sales operations have already been integrated with Oracle's pre-merger teams. Now, in the coming quarter some of the expense estimates may be too difficult to make, but we will break out the revenues and the segregated expenses whenever possible for the remainder of this year. Clearly we continue to expect Sun's contribution to meet or exceed $1.5 billion for non-GAAP operating income in fiscal 2011 and $2 billion in fiscal 2012. We've also made excellent progress with our supply chain efficiency efforts as the non-GAAP gross margins for systems was 46%; much, much higher than the 33% we reported last quarter. And as a reminder, Sun's product gross margin, which included software margins, was 38% last year.

In addition to our strong top-line performance we delivered very strong operating margins. With Sun included for the full quarter our operating margin was 46%, substantially higher than our peers', including IBM and SAP. Our 46% operating margin remains much higher than SAP's, even though we are also selling hardware. Fiscal 2010 again demonstrates the strength of our diversified portfolio of enterprise products, the breadth and loyalty of our huge customer base, and the strength of our operating model. The fact is we have a lot of Company-specific momentum. We've really executed well throughout the year and exceeded our own expectations quarter after quarter.

Now, before I turn to guidance for the upcoming year let me remind everyone that our plans for Sun is based on a more profit-aware model. As we've said a number of times we are no longer selling products as a loss, as Sun did, we are now compensating our sales team on margin, not just revenue, and this has the effect of changing the sales mix from systems where Sun lost money to value-added systems where Sun's differentiation is clear to our customers. These changes are allowing us to form a baseline for our hardware revenues and profitability at a level from which they can grow.

So let's get to the guidance and we do believe that the guidance I'm giving today is conservative. I want to emphasize that our pipelines are very strong in both software and hardware. For the coming quarter, assuming the exchange rate remain at current levels, which right now is a negative 2% currency effect on license growth rate and a negative 3% effects on total revenue growth rates, with that our guidance for Q1 is as follows. New software license revenue growth is expected to range from 4% to 14% in constant currency and 2% to 12% at current exchange rates. Hardware product revenues are expected to be around $1 billion in constant currency; that doesn't include the hardware support revenue. Total revenue growth on a non-GAAP basis is expected to range from 44% to 48% in constant currency and 41% to 45% in current exchange rate. On a GAAP basis, we expect total revenue from 42% to 46% in constant currency and 39% to 43% at current exchange rate.

Non-GAAP EPS is expected to be $0.36 to $0.38 in constant currency, up from $0.30 last year, and from $0.35 to $0.37 assuming current exchange rate. GAAP EPS for the first quarter is expected to be $0.18 to $0.19 assuming constant currency, and $0.17 to $0.18 using current exchange rate. This guidance assumes a GAAP tax rate of 33.5% and a non-GAAP tax rate of 28.5%. Of course it may end up being different. And lastly, the Board again declared a dividend of $0.05 per share.

With that I will turn it over to Larry for his comments.

Thank you, Safra. When we introduced the Exadata database machine it really was focused on data warehousing and our primary competitors were companies like Teradata and Netezza. When we introduced version two of our Exadata database machine in partnership with Sun and then when we bought Sun, we really focused not simply on data warehousing performance, but also on on-line transaction processing. And our current version of the Sun Exadata database machine substantially out-performs IBM's fastest computer in both data warehousing and transaction processing. As a result, in our previous quarter, Q4, some of IBM's largest customers began buying Exadata machines rather than big IBM servers, and the 2011 Exadata pipeline continues to grow and is now approaching $1 billion, making Exadata the fastest growing new product in Oracle's history.

Now, back to Q4. Again, I said the competition has really shifted from Tera -- to companies like Teradata and Netezza to big IBM machines and the Q4 results bore that out. We beat IBM 30 times in Q4. we beat Teradata nine times in Q4, and we beat Netezza, seven times in Q4, and we sold the Exadata machine into some of IBM's largest and bluest accounts, including Bank of America, Carrefour, the second largest retailer in the world behind Wal-Mart, and Thomson Reuters. Alternatively Charles will give you a picture of how our other product did in Q4. Charles?

Thanks, Larry. Really had good teamwork across all the account execs by product family, it was really a good quarter, as you can see. North and Latin American were strong results. They exceeded plan as they have all year long. EMEA, in a particular, did a great job of delivering results against a tough comparison, especially in the context of the change in the UK government, the financial instability in Greece and Spain, while integrating an acquisition. So with all those headwinds they delivered good results. And Japan saw a rebound from a rough start to the beginning of the year.

What I'm seeing in the field right now is we have many more touch points with our accounts, so our visibility and understanding of customer requirements has significantly improved, and right now almost any decision they make in the data center could potentially involve Oracle now. So we have deployed a cadre of technical advisors that we call plan architects that essentially act as dedicated CTOs for our large customers who want to stay tightly in line with Oracle's strategy and these client architects are more in demand as we become more important to our customers. They advise these CIOs on how to invest and shape their architectures in concert with Oracle's investments. We're improving the attach rate on deals to drag along multiple products up and down the stack and we should continue to get better as the products get more integrated.

We also saw partners, in particular the systems integrators and even some of the hardware companies, make a concerted effort to reinvigorate their Oracle partnerships post the Sun acquisition, which may be counterintuitive, but I think they see the momentum in the market and want to align themselves accordingly. It's also reflected in the amount of companies signing up as sponsors for Oracle OpenWorld, by the way.

So product comments, Fusion Middleware 11g. Upgrades to 11g from 10G are off to faster pace. Keep in mind that we already had most of the customer base on 10g. 88% were on 10g and now they're moving faster than the 10g customers move. We have several new options around 11g, which means about 70% of the install base is a candidate for add-on product modules once they upgrade. Web-Center within the Fusion Middleware suite did well in the quarter. Just wanted to point that out because with enterprise support and content management under that product we replace SharePoint [at Airbus and McAfee]. Also wanted to note that one of the recent acquisitions, GoldenGate, which is the leader in data replication across heterogeneous databases, got off to an extremely fast start with wins at [Sern] and other large companies, but more importantly it's getting us into accounts who are using non-Oracle databases since they're replicating across databases.

During the quarter we released Enterprise Linux, version 5.5. We now have over 5,000 Linux customers on our Enterprise Linus, over 400 added in the quarter. We're making investments around Oracle VM, our virtualization product. We're working on ways to leverage virtualization across our entire product line. Just one small example, we're working on an Oracle VM machine. This is Sun server with an integrated network switch [storage array.] Oracle VM VM manager and VM templates pre-configured and are ready to deploy (inaudible). So we can package this technology in ways that most people can't. This adds a lot of value and our competitors are trying to mimic it right now. We also released Enterprise Manager 11g in the quarter, that's our systems management product. That's a milestone release because first to manage applications down to storage, which is kind of what we're been talking about for quite a while, but it's a single management platform to monitor that entire stack.

In the applications area we had a very strategic and large one at Merck across multiple pillars. It also included some health sciences products from the vertical in that GBU. And in CRM I've talked about ADP in the past. They expanded their GM footprint with both on-premise and on-demand CRM where they're standard there now. Agile PLM, we had a large win at Foxconn, a contract manufacturer that makes the iPhone. Although they're using an SAP back end they're using Agile now for product lifecycle management. So our Agile applications continues to do extremely well in SAP accounts. And then in financial services we had a good win with [Amantus and Rezeleous], our risk management anti money laundering solutions at PNC Financial Services Group. We won two large banks in China, working with our FLEXCUBE core banking platform and they're working with us to build out the localizations, which is important for future wins. Lastly, just to give -- let me give you a sense of the types of hardware purchases on the Sun SPARC (inaudible) and why we're seeing momentum there. As you saw in the numbers types of companies that are committing to the M Series or the T Series, International Paper, Thomson Reuters, AmTrak, Cummings, P&G, Proctor & Gamble, Qualcomm, eBay, Paypal, all in this quarter and that's just a small sampling.

And with that I'll turn it back over.

Operator, I think we'll be ready to begin the questions now.

(Operator Instructions). And we'll take our first question from Heather Bellini with ISI Group.

Good afternoon, everybody. Safra, I was wondering if you could share with us your views on Europe and what you're seeing with sales cycles in that region now versus, say, a few months ago and in particular your view on whether or not you're starting to see this impact deal signings? Thanks.

Well, it's really a question for Charles. We actually were very, very strong in Europe. By the way they had a pretty tough compare actually, because they had a reasonably good Q4 last year and so far we're actually out to a very good start. But there's no question that the UK government and a number of our big customers have been impacted by different things in Europe, but we have so many products and we have such diversity in our European base and that things have been going very well for us so far. Charles, do you want to comment on this?

No, I think it sums it up.

Thank you.

Next question.

We'll go next to Adam Holt with Morgan Stanley.

The operating margins were obviously terrific in the quarter, you beat consensus by over $400 million. Safra, I believe you talked about the gross margins in the hardware business, where else did you see the key contributors to the margin upside in the quarter? And as we look into next year do you feel like we've reset at a higher level heading into fiscal 2011?

Well, of course you all have become accustomed to the fact that we sell a lot more software but we don't increase our cost structure very, very much and Sun and our own business generated a lot of new software sales. So that on its face, ignoring the hardware, would lead to higher -- to improved operating margin. And then we have the hardware business, which is clearly -- we're making it at the gross margin line, we're making it at the operating expense line, we're making it all around, but this is a scale business and the more we grow in scale as a software business, and frankly, the more we grow in scale as a hardware business, our operating margins will improve. You just need to look at our history for the past few years and it shows up all around, hardware and software business.

Terrific, thank you.

We'll go next to John DiFucci with JPMorgan.

Safra, you've been very clear about focusing on profit as it pertains to Sun and actually as it pertains to any business, but looking forward into this business on the hardware top line can you give us a little more general guidance on how we should be thinking about it going forward? Coming into this quarter obviously it's your -- end of your fiscal year and it was close to what Sun's fiscal year would have been and perhaps maybe the hardware business looked pretty good and perhaps there could have been some pent up demand, too, to show that, but I'm just wondering if we should be -- given the guidance for next quarter and looking forward if we should be just maybe not too aggressive on the top line for the hardware business going forward?

Well, there's no question we need to get some sort of a baseline for the hardware business but you need to understand that we are also selling differentiated products. We have a lot of new differentiated product, both out and coming out, and Exadata is one of those kinds of products. Obviously I'm not going to recommend you get ahead of my guidance. There's a reason I'm giving you guidance, it's what we actually think we're going to do, but we will need a year to understand the amount of seasonality that there is in the hardware business. We don't have full visibility and as I did mention we are no longer reselling other -- some products that were other people's products, which Sun sold for hundreds of millions of dollars a year, and so that has to be -- we need a year without that for you to get a baseline.

But in general we feel that our -- we already see it. Customers are buying a lot of hardware now. They are very, very loyal to technology that they love and now that they know that it has a future and that we are investing an enormous amount in continuing these lines and enhancing them they are much more comfortable making those investments again. So if you -- you can see sequentially we're not projecting a very large decline, which in our software business we usually are between Q4 and Q1, because we have some hardware-specific momentum we're very upbeat about. But we will need a year to understand pipelines and conversion rates, et cetera and see how we come out, as well as to be able to measure some of these new products and how they're taking off.

Thanks. If I might just a quick follow up for Larry to that and the hardware business. The Exadata product, both OLAP and OLTP solutions and people are used to buying analytics in an appliance fashion or appliance form function, I'm just curious how much are you starting to see customers get as far as their comfort level of buying transaction processing solutions and buying Exadata?

Well, I think as long as we can demonstrate -- the Exadata version 2 is a relatively new product. As long as we can demonstrate in benchmarks that we're a lot faster than IBM SAS's computer, but the appliance is particularly attractive in LLTP because since OLTP is mission critical and all these people stick together our architecture is not only faster than IBMs, it's also much more reliable. Exadata has a fault-tolerant architecture, there is no single point of failure, which is much more important in OLTP than it is in data warehousing. So we're faster and more reliable. Now we have -- people are sceptical about any new product. They buy a couple machines and they test them and then they put them into production, and if we're successful then they start making standardization decisions. But I think the combination of much better performance and the fact that its appliance where the all pieces fit together, engineered to fit together and tested together, and the fact that it's a fault-tolerant architecture gives us a huge advantage over IBM in the OLTP space. So again, each customer will take their time in trying it and then make their decision, but we're making really good progress.

I also want to add on to what Safra said. She forecast hardware at $1 billion for Q1 but the guidance is the guidance. However, you should know our plan is to dramatically grow the Sun sales organization and strongly grow the Sun business. Your earlier question, are we just focused on profitability. We are focused on growing the Sun business and growing it rapidly. We're being very conservative in our guidance, as we should be, but we are adding a lot of sales people. Maybe Charles can comment on just how quickly. It takes them awhile to get productive, but maybe Charles can comment on just how quickly we are adding distribution capacity to the Sun sales organization so we can grow that business?

Yes, as you probably know we made a big public announcement that we're hiring and so that's generated a lot of momentum. What I've been impressed with is the quality of the people who are coming because they're excited about the differentiated message they see, where Sun is going, they see Exadata, they see the investment that we're making and so the quality of senior people who want to come here from our competitors has surprised me and we're signing them up as we speak. And now that the quarter's over with we have a little more time to focus on it. We're ramping up, but the pipeline is there and people to hire.

Yes, we're going to more than double the Sun sales force.

Okay, thanks.

Okay.

Thanks, that's very helpful. Nice job.

Thank you.

Next question, please.

We'll go next to Sarah Friar with Goldman Sachs.

Terrific, thanks for taking my questions. First, on Sun maintenance where it feels as if you still have a lot of low-hanging fruit, now that you have a quarter under your belt what are you seeing in terms of trends in pricing on maintenance and then attach rates? Then I have a very quick follow up after it, if I may.

Sarah, you have kind of a funny line so we couldn't quite hear you, but you're asking about Sun support, support on--?

Yes, exactly. Sun maintenance so what you're seeing in terms of pricing ability and then attach rates, which I think were quite weak before you took on Sun?

Yes, we -- well, we announced new pricing, which was very, very well received. Gartner wrote an excellent report on it and customers have adopted it very much. It's considered extremely competitive. A lot of customers that had not been on support from Sun have come to Sun -- have come back to Sun and the attach rates are increasing, so there's definitely a value to Sun support for hardware and software and customers are recognizing that and attach rates are increasing and we expect them to increase even further.

Great, and then if I could a follow up, just very big picture. You're clearly one of the big tech to all others, your views on the environment hold a lot of weight, are you seeing any change on the margin? Not even just Europe specific but just on the margin in terms of a customer's willingness to spend today versus a month ago versus maybe two months ago, because clearly the market is saying that they're very concerned right now?

For us, as I said before, it's very hard for us to parse the line -- to make a line between Oracle's Company-specific momentum and the overall market. Our customers are very, very happy right now and they're showing that by investing in more and more of our products. This is sort of a consistent message. We got the exact same question a quarter ago and a quarter ago, and there's no question that the quarter started off very well for us already. And I think that -- we're not economists here, we just sell software and hardware, so far, our customers are making very significant investments and there are a lot of customers looking at our products right now very, very seriously and making buying decisions literally as we speak. So I don't know if anybody else wants to take a stab at the economy question, but things are going well here, guys, which I think is clearly obvious.

Okay. Well, the perspective is great, thank you.

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

Yes. Can you please give us some more color around the change or the elimination of the Sun channel and how that has -- the impact is having on the operating margin line?

Well, yes, let me correct that. We didn't eliminate the Sun channel, at all, that's not exactly what we're doing. What we said was over time there would be a gradual shift to a more direct mix of business that Oracle normally sees. So pre-Sun anywhere from 40% to 43% normally in a given quarter of our business goes through indirect channels, so we've had a strong channel for many, many years and it's important to our business. Sun was much, much higher than that. For our large customers we want to service them directly so there will be a shift toward our number over time, but nothing dramatic in one quarter, nothing to disrupt the flow of business. So that shift has started but, again, it will take some time.

And regarding the margins, obviously this will lead to actually higher revenues for the Company and because of our really massive scale it'll actually also lead -- revenues will increase a lot, expenses will not increase as much, which means that overall operating margins will improve consistent with really the -- leveraging the massive scale we have here.

So the take-away is that it really wasn't an impact in this quarter because it's too early to impact, is that the way to look at it?

That's fair.

A few of those partners are adding value and we want -- the ones that are adding value we want to continue to work with for many years.

Thank you.

We'll take our last question from Phil Winslow with Credit Suisse.

Yes, great quarter. Just a question on the database--?

Phil, we can't hear you.

Can you guys hear me now?

Not really.

Phil?

Okay, can you guys hear me now?

Sorry, Phil.

Phil, we're not getting a connection, we'll try back next time. Operator, will you close out the call, please?

That will conclude the question-and-answer session. I'd now like to turn it back over to Ken Bond for any additional or closing remarks.

Thank you, operator. 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 8533249. Also, a webcast replay will be available through the close of Market on July 1, and can be found on the investor relations website. Please call the investor relations department with any follow-up questions from this call. We look forward to speaking to 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.

And again, that will conclude today's call. We do appreciate everyone's participation.