甲骨文 (ORCL) 2011 Q4 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 turn the call over to Ken Bond, Vice President of Investor Relations for Oracle.

Please go ahead, sir.

Thank you, operator.

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

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.

On the call today are Chief Executive Officer, Larry Ellison; President and CFO, Safra Catz; and President, Mark Hurd.

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

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

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.

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

And 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.

And finally, we are not obligating ourselves to revise our results or publicly release any revisions to these forward-looking statements in light of new information or future events.

Before taking questions from the audience, we'll begin with a few prepared remarks.

And with that, I'd like to turn the call over to Safra.

Thanks, Ken.

I'm going to focus on our non-GAAP results for Q4 and for fiscal year 2011, then I'll review the guidance for Q1, and turn the call over to Larry and Mark for their comments.

As you can see, we delivered yet another exceptionally strong quarter to complete a fantastic year for Oracle.

We continue to have a lot of company-specific momentum, and we executed extremely well throughout the fiscal year, exceeding even our own optimistic expectations quarter after quarter.

For the year, we achieved 25% new license growth in Q1; 21% in Q2; 29% in Q3; and including this quarter, we delivered 23% new license growth for the full fiscal year.

Our software business is now even bigger than IBM's software business.

For the year, we delivered 38% EPS growth in Q1; 33% in Q2; 40% in Q3; and including 25% this quarter, we delivered 33% EPS growth for the year, once again way ahead of the 20% growth we promised.

Our non-GAAP earnings per share for the year were $2.22, well above the consensus estimate of $1.88 when we started the year.

And unlike a few of our competitors, we're not delivering this EPS growth by aggressively reducing our share count.

Obviously, we're thrilled with our Q4 results.

This was Oracle's first $10 billion quarter.

New software license revenue was up 19% to $3.6 billion, accelerating from 14% in Q4 of last year.

Currency effects for the quarter were largely as expected.

We continue to see broad-based geographic and product momentum, as technology and license revenues were up 18% to $2.7 billion in Q4, and applications grew 22% this quarter, to $1 billion, with Asia-Pacific particularly strong, including Japan, which grew during the quarter.

Our North America applications business passed SAP a while ago and now, if you exclude Germany, we believe we have essentially caught up to them in Europe.

Geographically, the quarter was strong and balanced, with new license growing 16% in the Americas; 24% in A-Pac; and 22% in EMEA; and the quarter wasn't dependent on any large deals.

Software license update and product support revenues were up 15% to $4 billion.

Sun hardware system revenues was $1.2 billion for the quarter.

We are running the Sun business on a more profit-aware model.

Compared to Q4 a year ago, we have made a big move away from selling products at a loss or reselling other companies' products.

Rather, we are focused on selling value-added systems, where Sun's differentiation is very clear to our customers.

For example, non-Sun storage was down significantly; Sun storage in tape grew very well.

And of course, Exadata and Exalogic continue to show fantastic growth.

This strategy shows up in our hardware gross margins, which were 56% this quarter, significantly higher than the 46% last year.

Later this year, I expect the growth of the Sun hardware products to become quite obvious.

Total revenue for the quarter was $10.8 billion, up 12% from last year.

In addition to our strong topline performance, we're extremely pleased with our non-GAAP operating income of $5.2 billion, 19% higher than last year, as our operating margin extended to 48%.

We could be back at pre-Sun operating margins quite quickly, as there remains ample leverage in our business model.

For the year, our operating income grew 27%.

And even with the Sun hardware business included in our results for the full year, we delivered non-GAAP operating margins only 2 points below our all-time high.

The non-GAAP tax rate for the quarter was 23.3%, due to several favorable nonrecurring items, including agreements with worldwide taxing authorities.

EPS grew 25% to $0.75 on a non-GAAP basis.

The fact that we were able to put up these topline and bottom-line results, given our size, once again demonstrates the strength of our diversified portfolio of enterprise products, and the breadth and loyalty of our huge customer base and the strength of our operating model.

We now have $29 billion in cash and marketable securities, and operating cash flow increased to a record $11.2 billion for the year, while free cash flow increased to $10.8 billion.

As we've always said, we're committed to returning value to our shareholders through technical innovations, strategic acquisitions, stock repurchases, prudent use of debt, and a dividend.

And this quarter, we repurchased 12.5 million shares for a total of $422 million.

For the full year, we repurchased 40.4 million shares for a total of approximately $1.2 billion.

And the Board again declared a dividend of $0.06.

Now to guidance.

As you remember, we had a spectacular Q1 last year, with new license up 25%; non-GAAP EPS up 38%; and GAAP EPS up 20%.

So, assuming exchange rates remain at current levels, which is right now a positive 5% currency impact on license and revenue growth rates, our guidance for Q1 is as follows.

New software license revenue growth is expected to range from 10% to 20%; hardware product revenue growth is expected to range from negative 5% to positive 5% -- and of course, that does not include the hardware support revenue; total revenue on a non-GAAP basis is expected to range from 9% to 12%; on a GAAP basis we expect total revenue growth from 10% to 13%.

Non-GAAP EPS is expected to be $0.45 to $0.48.

GAAP EPS is expected to be $0.33 to $0.36.

Now, this guidance assumes a GAAP tax rate of 29% and non-GAAP tax rate of 28.5%, which is nearly 4 points higher than our tax rate in the previous year.

Now, of course, this may end up being different.

With that, let me turn everything over to Larry for his comments.

Thanks, Safra.

Our database business grew 28% in Q4 and 26% for the year.

That growth rate is twice as fast as any year this past decade.

We're already more than twice as big as IBM, the former number one and current number two player in the database business.

And we're consistently growing faster than IBM and taking market share away from them.

Why is the Oracle database business suddenly growing so fast?

Because we have advanced our database technology to take full advantage of the latest trends in the database market -- cloud computing databases; in-memory databases; and now, big data databases.

This year, we did a number of cloud computing deals, including a very large one with salesforce.com last quarter.

And this quarter, we did one with the biggest and best name in mobile devices and cloud computing in the world.

That deal included our database software, Exadata machines, our cloud computing billing system, and our cloud email system that scales to millions of users.

It is all based on our technology.

Today, more than 1,000 Exadatas are installed and we plan on tripling that number this year.

We think that's possible because Oracle apps run unchanged on Exadata.

That's very different from IBM Netezza, which does not run Oracle apps or IBM DB2 apps, or anything else except applications that are custom-built for Netezza.

The expansion of our Exadata business and our rapidly growing Exalogic business, plus a couple of new hardware and software appliances we plan to introduce this fall, should turbocharge the overall growth of our hardware business, making the topline and bottom-line better than ever.

We're very excited.

Over to you, Mark.

Thanks.

Safra walked you through the numbers.

I probably just have a couple key points.

First, we sold a lot of software.

And I've looked at the history books, I'm not sure this isn't one of the best numbers I'm ever aware of in the industry.

A couple things that have us excited.

First, our industry-focused business units grew faster than Oracle again, with broad-based strength across the industries.

Second, our 19% new software license growth was broad-based with technology and apps both growing at very strong rates.

It's the first quarter we've ever sold more than $1 billion in apps.

We had great performance in every region, and delivered license fee growth in mid-teens or higher in every region.

Fourth, we began to make material progress in hardware support attach rates.

I'm not going to explain attach in detail today, but this is good news.

The fundamentals of the business now is we are selling fewer units at higher prices, and we have higher margins and they have higher attach rates.

These are the fundamentals of a solid hardware business.

Last, Exadata -- our sequential growth was more than 50%.

That's big growth, and it was broad-based.

We sold to more than 150 different customers with close to half buying multiple systems.

P&G, JPMorgan Chase, Apple, Fidelity, Boeing -- have helped us now cross the 1,000 systems mark in installed Exadata systems.

We have 300,000 database customers running Oracle database workloads -- every one of them is a prospect for Exadata.

The exciting news is, in addition to this, the Exalogic ramp has been even better than Exadata, and every one of our 100,000-plus middleware customers is a prime prospect for Exalogic.

With that, I'll turn it over to Ken.

We'll take your questions.

Thanks, Mark.

Operator, we're now ready to take calls -- or questions, excuse me.

(Operator Instructions).

Adam Holt, Morgan Stanley.

My question is about the hardware business; actually, it's a two-part question.

The first is on the actual product.

How material was the headwind in the quarter relative to the shift in the model?

And what gives you confidence that the product business starts to grow again?

And then I guess on the support side, it looks like double-digit growth in hardware support.

Maybe a little bit more detail beyond just attach, as to what's driving the strength there.

Thank you.

Why don't we start on attach, Adam.

The reason attach is important, I think you know this -- the eventual hardware support revenue is defined by the volume of hardware you sell, times the attach rate, which is the service dollars that you charge for that support.

And then how long the installed base stays there.

And what we've done really is moved to a model now where we've got the service lined up with the sales activity, that we attach the service to the actual sale.

This may sound so elementary to you, but if you lose control of that in your process -- and that had happened previously -- it's actually a difficult set of work to get that back, and we've done that.

And that does start to lead, over time, to that incline in that hardware support revenue that you describe.

So it is an absolute key element.

The other point of the hardware business, Adam, just -- while we're on it, is that these fundamentals I described earlier are really important.

Selling units that have no gross margin are easy to do.

I could get -- I won't give you examples of what I could, but that said, we have ways of selling lots of hardware without getting margin.

We are focused on selling hardware systems.

We are now selling fewer systems at a higher price that are of more value to the customer, that stay installed longer.

These are -- and also, we're doing that at higher margins.

So, these are the fundamentals of a solid hardware business.

And then, of course, to the point we have to eventually grow that business on the topline.

And you have a very, very attractive business model.

Terrific.

Thank you.

Kash Rangan, Merrill Lynch.

Thank you very much.

Nice quarter.

I guess one for you Safra, and if I could, one for you, Mark or Larry.

Safra, nice guidance, nice cash flow; in fact, the guidance is a little bit better than what we're modeling.

And we all read the same newspapers.

I'm just curious to get your perspective on how you might have incorporated what seems to be a questionable macro outlook in your forecast.

And for you, Mark, if you could just comment anecdotally upon the attach rate of database licenses to Exadata, and also the attach rate of middleware licenses to Exalogic, since you have obviously very ambitious goals for tripling the hardware business.

That's got consequences for the software business, if indeed, there is a attach rate trend there.

That's it for me.

Thank you.

Okay.

Let me sneak in before Safra answers, the state of the macro economy.

The attach rate to Exalogic would be 100% of our middleware.

The attach rate to Exadata would be 100%.

One of the nice things is Exadata and Exalogic become a larger percentage of our overall hardware business, having grown off a fairly small base now up to 1,000 machines and, hopefully, 3,000 machines next year.

As that gets to be a larger and larger percentage of our overall base, that improves our profitability.

Exadata is growing faster than the traditional Sun line, so it improves our topline growth rate.

And because of the 100% attach rate, it improves our service growth rate and our service margins.

So overall, as we sell more and more engineered systems, and fewer and fewer undifferentiated systems, we make more money on the hardware sale; we make more money on the associated service.

And it actually is an enabler that allows us to increase our rate of sales of our middleware software, because our middleware software runs better on Exalogic.

And that's the best middleware combination you can buy -- Exalogic hardware and Exalogic software from Oracle.

The best database combination you can buy is the Oracle database running on the Exadata machine.

So we actually sell more database software because of Exadata.

We sell more middleware software because of Exalogic.

It's a virtuous circle that we plan to fully exploit this current fiscal year.

Safra?

The macro economy.

Sure.

Well, Kash, I'll tell you, nothing has really changed for us in the way we give our guidance.

It really is from the ground up.

And we've got guys around the world who roll in a forecast into us, and we take an additional review of it.

But it's very much the same.

The truth is that the economy is sort of as it is, and yet we continue to grow.

I mean this quarter, in case anyone missed it, was really basically an organic growth quarter for us.

And the license number is pretty much very little help from any kind of acquisition, and obviously, significantly faster than any of the world economies are really growing.

So, we've got a lot of very Oracle-specific momentum.

And though we read the same newspapers you do, we also have to be sensitive to the fact that our sales force continues to grow.

We've done a significant hiring, and continue to be optimistic enough to continue to hire this next year.

So we're giving, I think, guidance that includes all those little pieces of information, but it's mostly based on the growth of our pipeline and what we get from our fields around the world.

I might add, too, that we added 800 people to the sales organization this quarter.

So if that gives you an idea of our Oracle-specific confidence in where the market is, that might be a good measurement for you.

I told you last quarter we'd start hiring -- we did.

And as to Safra's points, again, this growth was broad-based.

I'd use the region example and the different parts of the business, but I'd add there were no individual deals of materiality either.

This is just good old broad-based organic growth.

Next question, operator.

Phil Winslow, Credit Suisse.

Good quarter.

Just got two questions here, the first one for Mark and then Larry.

Mark, there's been a lot of chatter just across Wall Street about some changes potentially going on with the sales force.

Wondering if you could walk us through those tweaks that are being made, just sort of what the upside that you're going for is and how you minimize disruption.

And then, Larry, over the past month or so here, we've had a lot of big data announcements from competitors -- Hadoop boxes, Netezza this week.

And then EMC talking about HP Violin versus Exadata.

Wonder if you'd just discuss where you see the market going, where is Exadata versus these other guys?

Thanks.

Sure.

Let me start by giving you some answers on the sales force.

Part of that adding more people is really doing some division of territories.

This means that we actually put more territories in the field by being able to get more density of coverage out of our sales force.

We believe we're under-distributed, full stop.

And when we get in front of more customers, we actually sell more software.

And so that's why we're adding more representation.

These are both salespeople and pre-sale people, technical people, if you will.

They are in GBUs as well as in our regions.

And they are across all regions.

So for us, it's a simple case -- if a salesperson, to give you an example, had 20 customers, we think there's opportunities for that salesperson to sell just as much software calling on five customers.

And therefore, for us to get higher productivity.

And that's what we're doing.

And that's probably the chatter you're hearing.

But what's in it, I want to emphasize -- continuity of customers; same territories; very minimal disruption; just adding more resource to get more reach value in the market.

Well, we're planning to add a couple of appliances and announcing them this fall.

One appliance, it shouldn't surprise you, it's a large memory addition to Exadata for analytics and memory.

So we continue to invest.

We've been the leader of in-memory database technology ever since we bought TimesTen.

And that's both for transactions and for query processing.

We are, as memories become cheaper and larger scale, we've changed a bunch of our algorithms.

And this in-memory analytics accelerator is going to be, again, coming out and we'll be announcing it in the fall at Oracle OpenWorld.

In addition, attaching to our Exalogic box, there's a lot of misunderstanding about what Hadoop is and is it a replacement for a database?

So, Hadoop is not a replacement for a database.

It's an adjunct to the database, which we think is very, very important.

It really is a tool for Java programmers.

And we're the world leader in Java technology, and we are building a big data accelerator to attach to our Exalogic box, which comes out also this fall.

The big data accelerator includes some of the standard Open Source Hadoop software, HDFS, the Hadoop file system, a number of other pieces.

But also some Oracle components that we think can dramatically speed up the entire map/reduce process.

And will be particularly attractive to Java programmers who are the ones who ask for Hadoop.

There are some interesting applications for Hadoop -- ETL is one; log processing is another.

We're going to have a lot of those features, functions and pre-built applications in our big data accelerator.

So, Oracle has always followed database technology trends, whether it's object databases, in-memory databases, and kept up with this technology, and quite often led on innovation.

I'll point to our Exadata Database Machine, where we were the first to take a software product like Oracle and marry it to specialized hardware.

Teradata came out with the combination before, but IBM has yet -- IBM still hasn't come out with an appliance that runs their DB2 database very fast.

Instead, they kind of ran out and did an acquisition as opposed to innovation in this area.

So, we have long been an innovator around the database -- keeping it current, watching all of the trends, exploiting the technology, and that's been showing up in our numbers.

And that 28% in Q4 and 26% for the year is really a stunning number, considering the size of our Oracle database business and how much faster we're growing than our rivals, DB2 and Microsoft SQL Server.

All right, thanks, guys.

Looking forward to Exadoop this fall.

John DiFucci, JPMorgan.

I have a question on the hardware business.

I think it's probably one that people are thinking about, just want to give you a chance to address it.

Hardware margins were strong; they're actually very strong.

And as you noted, and it seems like, the higher margin hardware business is doing better than the lower margin business.

But at the same time, it is the second quarter in a row where the number is a little lower than what you had anticipated or guided to.

So just kind of curious -- why is that?

It really hasn't affected your aggregate results, so it's -- well, at least from my perspective, it's not a big concern.

But at the same time, just wondering -- is it as simple as the commodity business is drawing down more quickly than you anticipated?

Or is something else happening in that business?

Yes, it's Mark.

I'll start.

I don't think it's any of that.

I think we're just following the fundamentals of building a solid business.

And that's what we're focused on.

And I'll tell you one more time -- I've been doing this a long time -- longer than I want to admit.

And I'll tell you, these fundamentals of protecting your base.

And to be very blunt, as we go through the transition from Sun, we had to get more coverage out in the market.

I think you know that, but we are putting more coverage out in the market to make sure we get that done.

Making sure we attach all the necessary peripheral software, service to that attach -- those are the fundamentals we're working on.

And if you follow what I told you earlier, there's no question we want to grow the topline.

We want to grow the topline right.

And so to grow the topline right, getting rid of these low-margin businesses is key, because we don't get the attach, there is no aftermarket.

And I tell you from a shareholder perspective, that's value-less revenue.

So for us, we're focusing on that value revenue.

You're going to see material growth in Exadata; you're now going to see growth from Exalogic that's going to participate, as that becomes a more meaningful part of the portfolio.

We'll be very focused on a couple of our competitors that we think have some vulnerabilities, and we will be going after them.

And you'll see more alignments across the Oracle sales force as we go forward.

So focusing on those fundamentals, we'll be driving for growth.

But very frankly, through Q3 and Q4, our number one focus has been getting these fundamentals right.

And as I'd tell you numerically, I feel awful good about it.

And let me just also, John, add in -- I commented on it in my presentation a little bit.

As you know, we used to resell Hitachi.

But the other big storage that we sold was LSI's Engenio line, which I don't know if you know, but during the quarter was actually sold to NetApp.

So these are two product lines that we sold a lot more of and especially the NetApp Engenio move happened during this quarter.

So our storage of selling those kind of products is significantly down, while what you don't see is that our own storage business is up.

It just didn't overwhelm the reduction in that storage, in the storage where no -- the third-party storage that we're reducing aggressively, intentionally.

And John, one more time, you'd see the same fundamental in the server business -- that the higher-end, high-margin stuff has the positive numbers, and you would see the x86 line with a declining number of where in that market -- obviously, you get almost no attach either on the peripheral side or on the server side.

We basically make a conscious effort when deals come in here -- sometimes extremely large deals come in at profitability that's just not acceptable.

We just don't want to win them.

They're not worth winning.

So we just walk away from those.

Maybe for all of you, the topline, it would be better, but for us, we'd rather just make money than make revenues.

We're funny that way.

No, that's all fair enough.

And I don't want to repeat what you said but just so I understand it -- we actually are seeing what you're saying.

We're seeing it in the margins in the hardware business.

Yes.

I mean, again, we have Mark here.

It's not like he doesn't know how to sell hardware.

He'd probably sell $100 million of hardware in an afternoon here, and maybe folks would be happier, but we just would make less money.

I just don't think that would really make anyone happy.

We'd like to do it the better way.

Okay.

Okay, thanks a lot.

Brent Thill, UBS.

A question for Safra -- just back to the new license guidance that you gave, that was a lot stronger than most of us had forecasted.

I guess if you could just maybe help us out in terms of -- is that just how you're seeing the natural deals lining up for Q1?

Or did you have some spillover from Q4 that's giving you better visibility?

And I had a quick follow-up for Larry.

Well, you know, Q4, we always have some spillover, so that's always helpful.

But it really is exactly like it always is -- which is, we look at what the guys are forecasting.

As Larry mentioned, these Exadata systems and Exalogic systems, they really help because you've got to buy software for those.

And on the apps side, we've been really on just a roll.

And that's been very, very good.

So these are really the numbers.

As they roll up, I add my own little bit of conservativism, but again, it's the summer, as it always is.

And it's all about chasing those software contracts, often at the end of August when folks are on vacation.

So this is what we've come up with in the same way we've always done it.

And the guys are pretty optimistic.

Great.

And just for Larry on Fusion Apps, at OpenWorld last year, you mentioned that you thought there'd be 50 to 100 customers in the first half implementing.

I'm just curious if you could give us a high-level update in terms of how Oracle Fusion is going?

And what you think the next milestone is we should be watching?

We have a number of Fusion customers now that are live.

And Fusion is being completely rolled out for accounting, for human resources, for sales force automation.

It's something we've been working on for six years.

We're the only application vendor now that offers the same exact technology as Software-as-a-Service on our cloud, or you can buy the software and put it on your private cloud.

And by the way, if you put it on your private cloud, we'll run it for you, if you want us to, behind your firewall, attached to your local area network with all the security inherent in that.

We are -- our whole approach to, if you will, Cloud 2.0, is people say we're not building multi-tenancy software.

Remember, when I started my little company, NetSuite, and six months later when Marc Benioff started his company, salesforce.com, that was over a decade ago, when virtualization wasn't so common for isolating different customers running on the same machine.

So, Cloud 2.0, we used virtualized elastic cloud technology -- very different than, let's say, what salesforce.com is using, more than -- almost 15-year-old multi-tenancy technology.

We are offering a much higher degree of security, and much higher degree of isolation, when you run on our public cloud, which looks a lot more like Amazon.com, let's say, than salesforce.com.

We think that modern technology has such a huge security advantage that salesforce.com will be facing very, very serious competition for when -- as Fusion is rolled out this year.

And SAP has no answers at all -- they've got nothing.

So we've been competing very effectively against SAP over the last several years.

We've passed them in North America; we've tied them in Europe except for in German-speaking Europe.

And now they are faced with -- what have you got for cloud?

That would be, nothing.

While we have a completely rewritten suite of applications built entirely in Java, runs on Cloud 2.0, virtual elastic -- an elastic cloud that's virtualized.

We have technology advantages over salesforce.com, but they've got nothing over at SAP.

So we think this is going to be a huge contributor to us this year and the following year and the year after that.

And it's going to allow us to take a significant amount of share from SAP and some share from my friend at salesforce -- who, by the way, the salesforce guys are big customers of ours.

So, you know?

When they sell, we make money.

When we sell ours, we make money.

We like that.

Thank you.

Joel Fishbein, Lazard Capital Markets.

This is a question for Mark.

Just to follow up on your comments during your prepared remarks about Exalogic accelerating or being on a faster trajectory than Exadata.

Can you just give us some color on what's driving that?

And maybe some specific customer wins that you may have had in that area?

You know, I think with Exalogic, you've got an opportunity now to go to Java-based applications and get, in some cases, 2, 3, 4x better performance than what you had before.

And most of these middle tier suites are running on x86-like architectures.

We get the opportunity to sweep up, if you will, that entire tier and integrate with Exalogic.

And it's got a very similar set of characters to where you see in Exadata.

You get a chance to get a superior TCO.

So when I show up with a 2x, 3x, kind of number, you can take that in raw performance or you can take it in lower costs.

Or you can dial in what piece of which that you would like.

So it's an extremely attractive value proposition.

And to Larry's point, it's 100% attach of our middleware; 100% attach -- and I think Larry said this, but I'll emphasize again -- 100% hardware and software attach that goes with it from a service perspective as well.

So, very attractive value prop.

And I'll make sure that during the quarter, we're very aggressive with customer wins in terms of our messaging out in the marketplace.

But the ramp, if you look per quarter, that we've done with Exalogic -- faster than the early days of Exadata.

Great.

Thank you.

And we have time for one more question.

That question will come from Jason Maynard with Wells Fargo.

Right on, guys.

Let me shift gears here a little bit.

I'm curious with -- I think you said $29 billion -- you've got a lot of cash on the balance sheet.

And I'm just curious how you guys are thinking about the acquisition strategy.

I mean, valuations for a lot of private and small and mid-cap companies aren't necessarily at trough levels.

There's also some folks out there who seem to think that Oracle has to buy to keep growing.

Just what's your sort of philosophy right now?

What do you -- how would you sort of couch or guide us to think about the use of cash on the M&A front?

Well, we had 19% software new license growth without acquisitions.

And I think we're able to grow through acquisitions when they're attractively priced and they make sense.

And they are by and large not attractively priced now and don't make sense, so we're not doing them.

If these assets are wildly overpriced, we can't make a good business case for buying them.

Instead, we can focus our energies on organic growth, which means increasing the size of our sales force; introducing additional appliances, additional engineered systems over and on top of Exadata and Exalogic, a couple that I've already mentioned here.

So we think we've got a lot to sell already and that we can grow organically by expanding distribution, or we can grow by acquisitions when the opportunity presents itself and the economics make sense.

As I say, anyone looks at the valuations today and we don't think they make any sense.

Now lucky for us, we are so broad-based that we're not just a software company, we're not just a hardware company, et cetera.

We get to look in a lot of different areas, whether it's technology or vertical apps or whatever.

And every once in a while, we find a jewel.

And as usual, we'll buy a little of this and a little of that, but we're not leaving the regular rigor -- you know, pricing -- price does matter to us.

And we just want to make sure it's a good business case when we do it.

But we do -- luckily, we've got a lot of opportunities.

Just price has been quite ridiculous.

And if it's okay, maybe I can sneak one quick one in.

Safra, you teased us a little bit by saying that you could be back to full year pre-Sun operating margins quite quickly.

I'm curious just how you're thinking about that operating margin profile, maybe not just this year but the next couple years, in terms of how fast that can ramp perhaps back to?

You know, I'll tell you, I mean, I'm really delighted at how fast we got already here.

I mean, as it is, when you think about it, we ingested an entire hardware company and we still have the -- that was losing money -- it was losing an enormous amount of money, a shocking amount of money, actually.

And we ingested it and we still have the highest operating margins in the software industry.

So, we actually have still a lot of leverage in our model.

And there's really no reason why this year couldn't be really spectacular, and it will build throughout the year.

But as things start to really show up in the numbers -- again, you don't really see the ins and outs, the puts inside the hardware number, so you don't see what's happening there, although you do at least have some idea when you look at the margins.

And then, of course, with the software business doing as well, and the enormous installed base of customers who renew their agreements with us every year -- now, like, over 4 million -- it's -- there's a lot of room still in our model.

And we've got a lot of leverage still in it.

So, we're very upbeat.

I think we look at this past year and we're very, very pleased that we have had a hardware company in our numbers, and we're still the highest by a lot of all the software companies.

Good point.

Thank you.

Sure.

Okay?

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