甲骨文 (ORCL) 0 Q0 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 Ken Bond, Vice President of Investor Relations for Oracle.

Please go ahead, sir.

Thank you, Ruthie.

Good afternoon, everyone and welcome to Oracle's first quarter fiscal year 2011 earnings conference call.

With us on the call today are Chief Executive Officer Larry Ellison, President, Safra Catz, President, Mark Hurd, 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 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.

We encourage you to review our most recent report on Form 10-K and 10-Q 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 supplemental 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'd like to turn the call over to Jeff for his opening remarks.

Thank you, Ken and welcome, Mark.

Good afternoon, everyone and thank you for joining us.

I will review our non-GAAP financial results, focusing on US dollar growth rates unless otherwise stated.

This quarter, foreign exchange rates weren't much of a factor in our overall results, compared to our guidance of a negative 2% currency effect to new license revenue and a negative 3% currency effect to total revenue.

We beat the high end of our guidance range for new license revenue, total revenue, and earnings per share, with a record earnings per share for the first quarter.

On a constant dollar basis, we also beat our guidance ranges for new license revenue, total revenue, and net earnings per share.

In short, Q1 was an excellent quarter for Oracle.

In the first quarter, new license revenues were $1.3 billion, up 25%.

The Americas grew 33%, EMEA was up 12%, and Asia was up 26%.

With each region up double digits on a constant dollar basis as well, our results continue to underscore the strength and diversity of our business and this quarter was not dependent on any unusually large deals.

Technology and license revenues were $937 million, up 32%, as the Americas grew 44%, EMEA was up 25%, and Asia was up 19%.

Application new license revenues were $349 million, up 10% from last year.

The Americas grew 14%, EMEA was down 19%, and Asia was up 54%.

Our software license updates and product support revenues were $3.5 billion, up 11% from last year.

Customer support attachment and renewal rates continue at the usual high levels.

Revenues from our hardware systems products were $1.1 billion while revenues from (inaudible).

Our services revenues were $1.1 billion, up 18%, as we continue to manage this business to profitable margins.

Our total revenues were $7.6 billion, up 50% from last year.

Non-GAAP operating income was $2.9 billion, up 27%.

The non-GAAP operating margin was 39% for the quarter.

Our tax rate for the first quarter was 24.7%, as we saw some one-time benefits to our tax rate.

Our Q1 non-GAAP earnings per share were $0.42, $0.05 above the high end of our EPS guidance range of $0.35 to $0.37.

Earnings per share were up 38% from last year.

In Q1, we repurchased 10.8 million shares, at an average price of $23.13 per share, for a total of $250 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 $23.6 billion in cash and investments.

Our days sales outstanding improved again to 45 days, compared to 46 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.

Now I'll turn the call over to Safra.

Thanks, Jeff.

I'm going to just make a few brief comments on Q1 and then I'll review the guidance for Q2 and turn the call over to Larry and Mark.

Obviously, we're extremely pleased with our Q1 results, which follows a really great FY 2010.

Our software license growth was frankly outstanding.

It was more than double the high end of our guidance, actually.

And as I've said in the past, what's really going on is we have a lot of Company-specific momentum in each line of business, both software and hardware systems.

Our customers are realizing that it's far better to buy open and integrated solutions from us rather than discrete components from half a dozen separate vendors.

Clearly, the benefits of engineered systems are obvious to them.

We are just seeing more opportunities involving more of our products, and deals seem to be getting a little bigger.

Customers are buying our applications, including industry specific applications and of course they're deploying those applications on our middleware suite, database and operating systems.

Now, they are seeing real benefit to deploying those applications, and technologies on our optimized hardware systems.

So discrete product competitors are just becoming less and less relevant.

Our hardware system revenue also came in as you can see, better than we had expected, particularly since this is the first time the Sun guys have had an August close.

Because I actually do read what you guys write, I want to repeat something I've said on previous calls regarding Sun's hardware business and how we've changed it.

First, we've ended numerous reselling agreements accounting for hundreds of millions of dollars of hardware revenue that usually came to Sun at little or no profit at all.

Secondly, Sun lost a lot of money chasing commodity server share, but never really had the volume to actually compete effectively on price.

We are not going to chase highly unprofitable revenue.

And thirdly, we have redirected the hardware business to the part of the market where we have a competitive advantage.

Think Exadata.

There's a reason we talk about it all the time.

We're focused on the sweet spot of the market for us, where we can deliver unique value for our customers.

So comparing hardware revenue to Sun's historical revenue is just not terribly meaningful.

Now, you can see all this show up in our gross margins for systems which was over 48%.

Higher than last quarter, which was 46%, when even though our volumes are much lower in Q1.

So in addition to our strong top line performance in both hardware and software, we delivered very strong operating margins as usual.

With Sun included for the full quarter, our operating margin was 39%, substantially higher than our peers, including IBM and SAP, actually our 39% operating margin is 10% higher than SAP, even though we're also selling hardware.

So let me get to the guidance, and we do believe that the guidance I'm giving is realistic, though conservative.

I want to emphasize that our pipelines are very strong in both software and hardware.

For the coming quarter, assuming exchange rates remain at current levels, which right now is a negative 3% currency effect on license growth and a negative 4% total revenue growth, with that, our guidance for Q2 is as follows.

New software license revenue growth is expected to range from 9% to 19% in constant currency and 6% to 16% at current exchange rates.

Hardware product revenues are expected to be between $1 and $1.1 billion in constant currency or $1.1 billion and $1.2 billion at current exchange rates.

This does not include the hardware support revenue.

Total revenue growth on a non-GAAP basis is expected to range from 43% to 47% in constant currency, and 39% to 43% at current exchange rates.

On a GAAP basis, we expect total revenue at somewhere between 42% to 47% growth in constant currency, and 38% to 43% at current exchange rates.

Non-GAAP EPS is expected to be $0.45 to $0.47 in constant currency, and $0.44 to $0.46, up from $0.39 last year.

Assuming current exchange rates.

GAAP EPS for the second quarter is expected to be $0.28 to $0.30, assuming constant currency, $0.27 to $0.29 at current exchange rates.

Now, my guidance assumes a GAAP tax rate of 30.5%, and a non-GAAP tax rate of 28.5%.

Now of course it may end up being different.

And of course our Board again declared a dividend of $0.05.

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

Thank you, Safra.

I know there's been a lot of concern about Oracle going into the hardware business and so I'm going to focus my comments about the Sun hardware business, how we found it, and what we've done to try to make it better.

Let's see.

We have two fundamental goals in the Sun hardware business.

First, to make it profitable, and quoting one of our great Presidents, mission accomplished.

We now have a very, very profitable hardware business and made a substantial contribution to our overall profitability in Q1.

We have a profitable business and we think it's going to become more profitable throughout the fiscal year, but again, I want to emphasize, the Sun software business is clearly profitable.

I'm going to focus on the Sun hardware business.

I'm saying it's already making a substantial contribution to our profitability.

Since we took over Sun, we've improved the gross margins to 48.4%.

That's up from a around 38% when Sun was running things.

And we think there's more to go.

I mean, I don't know if we can get to 60 but 60 is kind of a target.

It depends on our product mix and it's not going to happen overnight, but again, I think we can very substantially improve those gross margins.

So again, we're profitable.

We want to make it more profitable.

Going to get better throughout the year.

Once profitable, and we are profitable, we've got to grow the size of that business.

And we think we can double it.

It's going to take some time, but again, we think we can double the size of that hardware business and we think we have to.

We have to go out and aggressively take share from IBM and our other hardware competitors.

All right.

To make Sun and the Sun business more profitable, what have we done and what are we going to do?

The first thing and easiest thing to do was to stop pursuing business that was not profitable, Safra pointed out, let's stop chasing revenue and start chasing profits.

So we're not selling Hitachi discs anymore.

It's a terrific product, but we don't make any money selling it.

We're not selling backup anymore.

Which are big deals and very prestigious, but I don't know anyone who makes any money on these things.

We're out of those businesses and that I think a lot of people are looking at our top line and saying that we're not growing.

Our top line is growing, buy that growth has been offset by kind of dumping this unprofitable -- these unprofitable lines of business.

We've filled in.

We filled in with other businesses which are more profitable.

The other thing we are -- so that's done.

We don't resell things that are unprofitable.

We don't pursue business that's unprofitable.

The other thing we're doing is trying to optimize operations over there.

We will be to a single integrated computer system for order management, for support, for dispatch for field service, we'll have all of that done around January.

So that's a pretty good record.

Oracle and Sun will be on a single unified global system in January, everything.

HR, payroll, accounting, service, order management, inventory, everything is going to be in place in January.

And that's going to be a big help.

That will make our operations more efficient and more profitable.

And we're reducing the number of contract manufacturers and reducing the number of contract manufacturer locations.

So we're simplifying that and by doing that we're able to negotiate better deals with those contract manufacturers.

We're directly shipping from those manufacturers to our customers, which we hadn't been doing before, which will lower our costs and get our customer their products sooner.

We had I think seven or 11, I can't remember which, parts depot locations in the Bay area alone, reducing that to a couple.

So we're simplifying and optimizing the operations.

Again, we think this is going to have impact throughout this fiscal year.

But we'll be in pretty good shape by the end of this fiscal year, and that's going to help the profitability of our business and the responsiveness of our business to our customers.

All right.

The other thing in terms of growing the top line of the Sun business is we've got to innovate in the area of interesting new products, and we inherited some new products from Sun which are terrific like the vertical storage appliance system that integrates software and hardware where the hardware and software is engineered to fit together.

So we love that product that was done at Sun.

We have been working with Sun to do other engineered hardware, software combinations, Exadata being the best known.

My quote in the release was the Exadata pipeline for the full fiscal year is now up to $1.5 billion, and growing rapidly.

We think this is going to be huge business for us, and we're going to be introducing more hardware, software combinations at OpenWorld next week.

That's big focus for us, is engineering so that everything can work together.

We think that these are the systems that will operate more reliable and faster.

That's certainly true of Exadata and it will be true of the other products we announce in this area.

We're upgrading our processors.

We think we can build processors as fast as anybody else.

Intel's got a terrific processor and we think we will have a terrific processor.

We've got a way to go yet but I think we're making really good progress building the team and building the next generation of SPARC processors.

That's kind of on the technology side of the hardware business.

We will continue to invest in that area.

The other thing is in distribution.

Sun had been going from direct sales, from the old name if you remember that name where Sun had one of the great sales forces in the industry, to virtually laying off the bulk of their sales force and going through partners and that's not the kind of Company we are.

We sell directly to very large customers.

We offer them technology and the services to exploit that technology effectively and we have those -- we already have those direct relationships with the customers in software and we need those same relationships both on the sales side and on the service side in the hardware part of the business, because again, we see that as a unified business.

There really is no such thing as the hardware business or the software business.

The business that we're in is the systems business.

And we have to provide support in the systems business.

We have to sell systems.

It's really one business.

And since we're direct in software, we need to be direct in hardware.

That's going to improve our margins.

That's going to improve our penetration.

That's going to increase our top line.

We're adding about 2,000 salespeople and which include not just salesmen, but also include sales engineers and service engineers.

And we're doing that with basically no net increase in our overall Sun division headcount.

We're eliminating or have eliminated about 2,000 positions of non-revenue producing, nontechnical people, replacing them with revenue producing people and technical people.

So we expect we can grow that business.

We can double that business.

We can deliver better product at higher quality of services to our largest customers.

We're very excited about this, and we fully expect to exceed that target of $1.5 billion in operating profit in the full fiscal year, and $2 billion the following year.

With that, I'll turn it over to Mark Hurd and Mark, welcome aboard.

Thanks, Larry.

It's great to be here with Larry and Safra.

Over the last 25 years I've competed against and partnered with Oracle, and I can tell you Oracle has amassed the most enviable portfolio of technology in the industry.

Not what Oracle's accomplished in the past, but the clear growth opportunities I see going forward.

The Company is well positioned for where the industry and where customers are headed.

I don't believe there is any other Company in the industry better positioned than Oracle.

Oracle is obviously the leading database Company at a time when data and digitization is increasing exponentially.

So we can catch a large trend occurring around the globe.

Oracle's way ahead of the competition in engineered systems and Exadata is really just the beginning.

And Oracle is defining that market.

The growth opportunities with highly optimized engineered systems are just starting and there's really no one else in the market with the software and hardware assets that can match Oracle.

In addition, I think there is a large unappreciated opportunity in industry verticals, telecom, banking, utilities, insurance, life sciences and others.

These industries can no longer afford to do their own software development.

Many of these vertical markets individually are larger than ERP in its entirety.

We have a huge lead in industry specific applications with our global business units and the fact is no other large software Company has even started addressing these markets.

Last, Oracle is a large global platform AT a time when much of the growth is going to occur outside the United States and we are well positioned to take advantage of that growth.

What really gives me confidence in Oracle's growth is the sheer size of our R&D investments and our financial capacity to execute.

We generated $8.5 billion in free cash flow over the past 12 months, and we expect that we will spend over $4 billion this year on R&D.

And we are going to spend all next week at OpenWorld explaining just how we are spending that money.

Without giving anything away, let me assure you, it's well spent.

I'm really excited about the opportunities on which I've just touched a few.

Let me turn to our Q1 results.

Listen, I've been doing this a long time.

25% license growth in a Company this size is a big number, especially for a Company that closes in August.

I've been selling for over 30 years but I personally never had to close the books in August, so the credit for this really has to go to the sales organization.

This is a fantastic performance.

We had several notable Oracle wins which were applications and technology systems.

(inaudible) We replaced their in-house legacy system with a system running on top of our middleware database operating system and Sun servers, top to bottom, Oracle technology.

We had a particularly strong quarter in technology, both database and middleware with growth of 32% and double-digit growth in every single region.

Database we continue to see a strong migration of customers to 11 GR-2 which also benefits our database options such as advanced compression and database volt.

We had key database wins in the New York police department to help with their counter-terrorism efforts.

In middleware our base of customers is now approaching 100,000.

Fusion Middleware 11-G which we released last year continues to do very well with the fastest adoption curve we've seen over any of our previous releases.

We released a major Oracle Business Intelligence EMG, while we've seen strong interest in example in the Parliament of Victoria in Australia and at the state of Nevada.

Application side, we had key wins against SAP at resorts in Mexico and at Health Care of California.

Industry decision, we saw growth again this quarter for the Sun products.

On the high end we saw great wins with the M-9000 at Banco Brazil against IBM and also at Center ink in Asia-Pac where we beat IBM again with the M9000 systems.

In the mid range we beat IBM in winning a big deal at Telefonica in Spain and developed an (inaudible) and a significant win at NAT in Japan.

(inaudible)

(Operator Instructions).

And we'll take our first question today from Adam Holt with Morgan Stanley.

Great.

Thank you and congratulations on obviously a very good quarter.

I wanted to drill down a little bit on the data base technology business, up over 30%, one of the best numbers we've seen in a long time.

Mark talked a little bit about the impact of Fusion Middleware but was there anything else that stood out in the quarter that was particularly strong and what's the outlook for next quarter?

I think Exadata, people think of Exadata as a hardware sale and of course it's a combined hardware, software sale and whenever we sell Exadata we sell database licenses unless the customer already has database licenses and we sell storage server licenses.

So for example, let me name my favorite, my favorite Exadata sale, which was we put three Exadata racks into Soft Bank and replaced 60, six, zero, Teradata racks and about half of that sale was hardware and half of that sale was software.

But that was a -- imagine this, 60 19-inch rack, kind of a room full of gear.

Soft Bank is Teradata's biggest customer in Japan and in goes three Exadata machines.

The three Exadata machines way outperform those 60 Teradata racks, and that -- a sale like that is reflected in both a hardware line and our software line.

And so -- and that really I think Exadata really is helping our technology software growth substantially.

We do want to remind everyone we're going to limit everyone to one question and then we'll move on to the next question.

Now we'll go on to Heather Bellini of ISI Group.

Hi.

Thank you.

Just looking at how you've retooled the hardware business, I was wondering if you could help us think down the road.

Is this something given the margin improvement that you've had that we could see get even better and kind of think about it in the likes of Cisco and EMC who have gross margins in the 55 to 60% range.

Heather, again, when we first took over the business we set an internal target of at least 50%.

We want to get to that point which is reasonable and we're just about there.

In Q1 we were 48.4.

And I think in Q2 we'll crest the 50 mark.

I think 60 is absolutely reasonable in gross margin and can we do better?

Depends on the product mix.

How many Exadata and other engineered systems, versus some of the other systems, T Series which is a little bit lower margin but I think depending on the mix we can get to 60 or better and I think we can just as importantly double the top line so we can dramatically improve margins and double the top line.

And our next question is from Sarah Friar with Goldman Sachs.

Great.

Thanks so much.

More strategic question, just given those comments on the opportunity in vertical industries and just given some of Mark's actions at HP, is a natural next step to have a bigger IT services component or Larry are you still of the belief that you're cannibalizing services and that that's the right shift for customers?

I think, again, I don't think we're going to end up -- again, IBM's a great Company and I appreciate the kind words from Paul about our business being their number one competitor now.

I mean that sincerely.

I think Oracle's flattered.

We worked very hard.

We look at IBM as our number one competitor.

We know we have to work very hard to be successful in the competition.

But IBM's services business seems to be the dominant part of their business and their product business is important but secondary to the services business, if you will.

We look at it just reverse.

We look at our products being the dominant part of our business and one of the things we're trying to do with our products is obviate the need for services, so if we do a very good job of integrating our applications together and making them easier to install and easier to upgrade, you don't need as much service.

So our goal, again, if we engineer these hardware, software systems together like Exadata, where the storage and the network and the servers and the operating system, the database and all this stuff is in one box, you don't need as much integration services.

So we're trying to reduce the amount of services required to take advantage of these systems.

Having said that, our customers especially in the big verticals which Mark mentioned, in banking, we've got big banks going through transformations.

We can't eliminate all the services.

That's a fantasy.

We can eliminate some of the stuff.

I think you'll see us engaging with our customers and providing services because they want us to.

But we also have to be prepared to partner with other service oriented companies and one of which is IBM.

We've actually got a very good relationship with IBM in services, which we're trying to expand let's say in banking.

IBM's got terrific presence in banking.

We've got some great banking products.

IBM doesn't sell banking software and we would love for IBM to become expert in using our software to transform banks.

And so again, our partnership with these service companies is absolutely critical.

The American companies, IBMs, the companies, I'm going to -- Mark knows a lot more about this than I do.

I'm going to let him comment.

Listen, when you're running a big services Company, the biggest issue is labor, and you've got a lot of incidents that occur and you've got a lot of labor trying to deal with those incidents of customers and the secret of services in the customer in the future is the way to automate those incidents and you automate them through services.

When you automate a process, you not only reduce the labor, you actually eliminate the labor and you actually raise the service level simultaneously.

So the R&D that we have in fact isn't really -- it's a supplement, if you will, to the services capability and as we get to more of these engineered systems where we can build something once and sell it many, many times and do that work remote and do it in an automated way, it is frankly a replacement for what you today think of.

As a product Company, we want to be supporting those labor based service companies, though and partner with them when it makes sense.

So I think our strategy is to do both, to automate those processes, to be able to sell those automated capabilities and then to partner with the services companies that it makes sense.

Thank you.

Very thoughtful response.

Appreciate it.

We'll take our next question from Jason Maynard with Wells Fargo.

Hi.

Good afternoon, guys.

I've got a question for Larry then a follow-up for Safra.

First, Larry, these Exadata results and the pipeline that you're talking about, it's pretty clear that this is becoming a big winning product for you.

Can you maybe lay out the vision for how this can expand to other work loads like custom developed and packaged applications and what does that mean for your opportunity to get more data center share spend.

Please come to Oracle OpenWorld on Sunday.

That's a very good idea.

Yes, I mean, it's something we certainly have thought about and makes complete sense and I think we'll be announcing some very interesting things on Sunday in that area.

Okay.

So I have to wait I guess.

Just a couple days.

All right.

That's fair.

I was going to follow maybe with Safra real quick.

These results for August were clearly better than we expected but the environment actually hasn't been that great for IT spending.

When you sort of look at what's going on out there, do you need the IT spending market to pick up much or can you continue to put up these type of results as with sort of a status quo environment.

The truth is we've been putting up these kind of results through really much of this environment.

The reality is that what we've got going is really very Company-specific.

We are taking share from others.

As Larry described in the Soft Bank case, that type of thing is really happening everywhere.

Customers are looking at us as their -- really, frankly, their most important vendor, and since they're buying so many things from us, they just -- many of them more and more are just doing what you know as Oracle first.

If we have it, they'll buy it from us.

They can't afford to be putting all these little pieces together from dozens and dozens of vendors.

We do it better.

We spend more in R&D than anybody else does and we make it our business and our job to make sure these things work together so that customers don't have to figure out how to do it themselves.

This is both sort of intuitively appealing and obvious to our customers who otherwise have to run very, very complex systems and that's why our deals, though we had no mega deals in the quarter or anything like that, but just deals are getting a little bit bigger, a little bit more products in every case and as they buy from us, we're obviously taking share from everybody else.

So in this environment, as you can see, we're doing just magnificently and that's because customers are just buying it from us and buying more.

Okay.

Cool.

See you Sunday.

Our next question comes from John DiFucci with JPMorgan.

Thank you.

Just first of all, welcome aboard, Mark.

Glad to see you here.

But I have a question for Safra.

Safra, as Jason said this is a really strong quarter and very clean across all the geographies.

But I just have a question on Europe, not so much regarding Oracle, your comments about Company-specific momentum seems to ring true at least historically and leading up into this quarter.

But especially, things that are happening in Europe and in Europe it seems to me anyway that there's a much greater percentage of IT spending that comes from government spending, whether that's direct or indirect, through healthcare, however it's done.

Just curious what you're seeing in this region.

I'm not just -- the apps license number was down year-over-year but that's not different from what we're seeing from other companies so I'm not picking on that at all but just trying to -- we cover a lot of companies, right.

Jason was trying to get to that.

What are you seeing in that region?

And how did that affect your guidance this quarter?

Well, the truth is, a number of the governments have been struggling for a number of quarters and as you know, we sell to governments but for us Europe is an -- Europe, Middle East and Africa is a lot of countries, there's a lot of potential there for us and our overall license in constant currency was 18% growth, which I think most folks would have thought it impossible and yet what's really happening is the same momentum we have in other geographies we have.

Is it true some of these governments are struggling and if they weren't we would sell even more?

Absolutely.

Of course.

As it is, we have so many products and so much still opportunity and I'll tell you in addition, I think our competitors are absolutely falling out of bed.

So as a result, we are both the safe choice and we are the obvious choice and to the extent that they have budget they use it with us and secondly, I mean, the truth of the matter is these companies cannot just stop and these governments cannot just stop buying our software.

They need it.

They use it.

And they ultimately have to go ahead and buy it and they are doing that.

So it's true, you know, 18% growth in this kind of a quarter in the summer, in Europe, , I'd say that's pretty darn good and we expect -- and actually Europe, even the number you mention, they actually had a very tough compare compared to everybody else and I expect all around, I expect very reasonable numbers, very good numbers

If I could comment about the European apps number, we've been tracking -- we track our apps business especially in Europe as a percentage of SAP because SAP is stronger in Europe than they are anyplace else in the world and clearly certain countries like Germany, Switzerland, Austria, they have a virtual monopoly, closing in on 100% share in those countries which make it very difficult.

We're up to about 60% of the size of SAP in Europe now in applications.

And that's the toughest market.

And we are bigger than they are in North America, for example, which is kind of our home territory.

So we think things are going pretty well in applications in Europe, albeit it could be a bit lumpy, Q1's our smallest license quarter and you point out that this is -- one deal, we've kind of missed one deal closed the first day of this quarter or a Q1 apps would have looked a lot better in Europe.

But we think overall, over the last four quarters, we've done very well in Europe against SAP, taking share from SAP in their home markets.

We have a number of deals especially in the, which I think Mark rightly emphasizes.

We are a large software Company and we have a lot of software that's industry-specific for retail, for telecommunications.

We're winning all of the retail deals in Germany against SAP.

All of them.

Let me repeat that.

100% of them.

So, we're very happy on how things are going overall, looking back over the last four quarters with our most important software competitor in Europe, which is SAP.

Thank you.

We'll take our next question from Kash Rangan with Merrill Lynch.

Thank you very much.

Larry, it was good to see you talk about the goals for doubling the hardware business.

Wondering if you could give us a little more color, how should we think about this to double the revenue and then get the margins up to.

Almost seems like you're going to be out of the low end business.

Looks like it's almost as big as the IBM mainframe business that you're looking to create maybe potentially larger than that.

How do you create that position given where Sun has been operating.

What would be your key priorities as you step into Oracle?

I'll make some opening comments and then I'll turn it over to Mark.

I think the big thing is these engineered system, Exadata being one example.

We'll be announcing some more systems in Oracle OpenWorld, the storage appliance.

We have to have products that offer unique value in the marketplace, like IBM mainframes.

I mean, IBM offers unique value with those products.

Those mainframes run software that doesn't run on other computers, kind of a unique value proposition.

With Exadata we've got to run the Oracle database ten times faster than on any other kind of machine and we do that and with other things we have to have very substantial performance and reliability advantages.

And cost advantages.

To go out and compete.

If we have those advantages, we have highly differentiated engineered products, that combine hardware and software.

We think we can improve our margins and grow our share dramatically, rather than mucking around kind of trying to sell a low end server on price against Dell.

We're partnering with Dell.

We think Dell is a great Company.

We love partnering with them.

We don't want to compete in that space.

They're very good at that.

I'll just add to it from a priority perspective, first, this is a very well-run Company.

We want to grow and we want to grow profitably.

We want to take share.

We want to be in a position where we can delight our customers and earn more of their spending and that's my priority.

When you look at the R&D and the things we'll be announcing next week, we want to have the best sales force on the planet, earning customers' respect every day.

Those are the things I'm working on.

And ladies and gentlemen, we have time for one more question.

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

Thank you.

Really impressive quarter, guys.

Just got two questions.

First one's for Safra.

Obviously we talked a little about applications rebound.

While database is driving the way and overall license growth, when you look at the apps business, what's driving it there?

Are we talking about core ERP or still these edge applications where you're getting the traction.

Just as a follow-up on database, we've seen some competitive announcements in the database market, memory, EMC buying Green Plum, just curious your take on those.

Thanks.

Well, listen, for us even ERP, remember, with us, our numbers are so big that we still got to sell ERP every quarter to do well, but the applications are doing very, very, very well also and, I mean, it's going very well all around.

I mean, as far as big ERP wins, a lot of people are not necessarily changing their ERP systems but they're buying more for their current systems.

They're buying additional modules into their systems and for us it's really all around going really quite well.

Performance management's doing very well, things like that, and so it's really -- it's the edge applications and the basic business remains solid.

Okay.

In terms of database technology announcements, Green Plum, SAP and memory and those things, you know, we're pretty good at this database thing and I was -- I guess the word was used, dismissive of SAPs memory database and SAP took that and did a movie where he interviewed himself.

If you haven't seen it, it's on SAP's website.

It's really worth watching, and he interviews himself.

He plays two characters and he talks about the SAP and memory database.

Now, I never said we didn't believe in memory databases.

I said I thought it was peculiar that SAP would choose to compete with us in the arena of database technology.

I mean, they compete with us in ERP and they've got there first.

They were ahead of us and they've done quite well and they're the leaders there but to compete with us in database just seemed like a peculiar choice.

Attempt to compete in middleware.

So they tried to compete with us in middleware and were not very successful and they hardly ever talk about Net Weaver.

For them to immediately move on to well let's go tackle them in database, with a two pronged strategy.

Let's buy.

Let's build our own technology kind of trumping Oracle in R&D and getting to market before them.

Let me announce today, I'll make the announcement now, that Oracle has had under development for some time an in memory database that is part of the Oracle database and we will deliver that through the market before SAP delivers theirs.

So we will be out in the market with our technology.

This is not radically new technology.

There are tons of research papers.

We've been following this for a very, very long time.

We don't live under a rock.

We've been working on this for a very, very long time and will deliver our product well in advance of their product.

We have -- I believe that Oracle will do a better job of delivering in memory database technology which is primarily for optimization.

And it's based on a variety of different kinds of compression and it's basically -- it's hybrid compression.

We've been working on it for a long time.

We'll be in the market before SAP and I believe just like we beat them badly in middleware where Fusion Middleware beat Net Weaver, they have even less of a chance to beat us in database technology than they had to beat us in middleware technology.

And it's just impossible at high stakes to beat us at middleware.

And they've done nothing new in their core ERP business design which is aimed at, for 25 years.

So this I guess will come as a surprise to nobody.

So after five years of development, Net Sweep and Oracle OpenWorld we'll be announcing our fusion application suite, all the ERP products, all the CRM products, all the HRMS products have been redone 100% in Java, all with integrated social networking web 2.0 interface, brand-new stuff from the ground up and SAP is going and compete with us using their 25-year-old technology.

And so rather than focusing on their applications and upgrading their applications like we did with fusion they said oh, no I've got a better idea.

You've got to watch the video.

You've got to watch it.

Instead of competing with us in applications and modernizing their application this say oh, no let's peel Oracle and database technology.

Good luck.

Operator?

Ladies and gentlemen, that does conclude our question-and-answer session.

I'll turn the conference back to our speakers for any closing remarks they may have.

Thank you, Ruthie.

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