甲骨文 (ORCL) 2013 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 introduce Ken Bond, Vice President of Investor Relations, Oracle.

Please go ahead, sir.

Thank you, Amber.

Good afternoon, everyone, and welcome to Oracle's fourth-quarter and fiscal year 2013 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 present some important factors relating to our business, which may potentially affect those forward-looking statements.

These forward-looking statements are also subject to 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.

And we encourage you to review our most recent reports, including our 10-K and 10-Q and any applicable amendments, for a complete discussion of these factors and other risk factors 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, we will begin with a few prepared remarks.

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

Thanks, Ken.

Good afternoon.

I'm going to focus on our non-GAAP results for Q4 and fiscal 2013.

Then I'll review the guidance for Q1.

And then I'll turn the call over to Mark and Larry for their comments.

My remarks generally reflect constant dollar growth rates.

This quarter, we saw a record $4 billion in new software license and SaaS subscriptions, coming within my guidance range at 2% constant growth.

In general, sales force execution improved significantly in most regions during the quarter.

As with most of our peers, we did see increased economic weakness in a few regions, which had an effect on our final performance.

Geographically, results were somewhat mixed, with GAAP new license growing 4% in the Americas, up 5% in EMEA, but down 7% in APAC.

I'd highlight places like Brazil, which pulled down our growth in the Americas, and a number of countries in Asia, especially Australia, as being particularly affected by economic slowdowns beyond our expectations.

Europe's economy remains unchanged, and we're actually pleased with our European performance.

In addition, in Q4 we saw currency headwinds, especially in Japan, Brazil and Australia, where currencies weakened 5% to 8% against the dollar since our last earnings call, in moves that were not anticipated in my Q4 guide.

Software support revenues were $4.4 billion, up 8% on this recurring part of our business.

Support attach and renewal rates continued at their usual high levels.

Hardware systems revenue was better than expected, $849 million, as our engineered systems had another spectacular quarter.

We also saw growth in our T-Series SPARC servers following a new product launch early in the quarter.

With some new M-Series now available, I think we're starting to see customers refresh their systems.

And we believe that we could have growth in total hardware as early as Q1.

Hardware gross margins were 51%, reflecting our strategy to focus only on high-value systems.

And the return of hardware growth should actually help increase gross margins even more over time.

Total revenue for the quarter was nearly $11 billion, up 1% from last year.

Non-GAAP operating income was $5.6 billion, with operating margins expanding to 51% from 50% last year.

Aside from the five quarters immediately following the Sun acquisition, non-GAAP operating margins have expanded year over year every quarter since November 2006.

And we actually continue to see ample leverage in our business model.

The non-GAAP tax rate for the quarter was 23.8%.

And the GAAP tax rate was 21.1%.

Non-GAAP earnings per share were $0.87, and would have been actually $0.01 higher but for the negative impact of currency, up from $0.82 last year.

GAAP EPS for the quarter was $0.80, up from $0.69 last year.

Operating cash flow increased to $14.2 billion over the last four quarters.

And free cash flow grew to $13.6 billion over the last four quarters.

Both have record results.

We now have $32.2 billion in cash and marketable securities.

Now, for the full fiscal year and for the first time ever, our new software sales were more than $10 billion, growing 6% in constant currency.

Together, new software license and software support grew 7%, averaging 10% over the last five years.

And our last major software acquisition was more than five years ago.

While hardware and hardware support declined 14%, I think we may have just seen the last of annual hardware revenue declines, which will have positive implications for total revenue.

Even with the declines in hardware revenues, total revenues for the year grew 2% to more than $37 billion.

Our non-GAAP operating margin for the full year was an all-time high of 47%.

Earnings per share was $2.68, growing 11% in FY '13.

Since we first shared our goal of growing non-GAAP EPS 20% over time, back in 2005, we've averaged nearly 19% growth for both EPS and free cash flow over the last eight years.

Even though the world went through a massive economic crisis.

In Q4, we purchased nearly 85 million shares for a total of $2.8 billion.

And for the full year, we purchased nearly 350 million shares for a total of $11 billion.

So as you saw in our release, today we announced we are restarting our quarterly dividend earlier than previously planned, and with a 100% increase to our quarterly dividend, or $0.12 per share.

This will commence with a record date of July 12 and a payout date of August 2. The Board also authorized the repurchase of an additional $12 billion of common stock under our existing share repurchase program in future quarters.

Between dividend and buybacks, this year we returned more than $12.4 billion, or more than 90% of our free cash flow, to our shareholders.

Today we also announced that we've applied to list our common stock on the New York Stock Exchange under our current symbol ORCL.

And subject to approval by the NYSE, we expect our common stock will begin trading on the NYSE on July 15.

Now, until the transfer is completed, Oracle will continue to trade on the NASDAQ under our current symbol.

Now moving to guidance.

I will say in advance that I continue to follow the news of the economy and the results of nearly every one of our competitors.

So I have tried to keep that in mind in my guidance.

And since I don't know what the exchange rates will be at quarter-end, I'm going to give guidance in constant currency.

Now, at current rates, currency will reduce growth rates by about 1% and -- growth rates, general growth rates, license and revenue -- and EPS by about $0.02.

That's what it looks like right now.

So, with guidance.

New software license and cloud subscription revenue is expected to range from 0% to 8% in constant currency in non-GAAP, and 1% to 9% in GAAP.

Hardware product revenue growth is expected to range from a negative 6% to a positive 2% in constant currency.

And as a result, total revenue growth on a GAAP and non-GAAP basis is expected to range from 3% to 6% in constant dollars.

Non-GAAP EPS is expected to be somewhere between $0.56 and $0.59 in constant dollar.

GAAP EPS is expected to be somewhere between $0.42 and $0.45 in constant dollar.

This guidance assumes GAAP and non-GAAP tax rate of 24%, of course, and it may end up being different.

With that, I'll turn it over to Mark for his comments.

Thanks, Safra.

Just today I thought I'd be brief and talk a little bit about our cloud business and give you some facts.

Our cloud now runs well over $1 billion dollar run rate.

That is bigger than both Workday and SAP combined in the cloud.

We are clearly the second largest provider of the SaaS market, with more than 130 Fusion customers that are live in production today.

In Q4 alone, we added 500 new SaaS customers, 300 of those is HCM alone.

Not only are we bigger than Workday in HCM, but we are growing faster than Workday.

They recently claim to have added 50 new customers in HCM and ERP.

We added more than 50 in HCM alone.

And with more than 80 new Fusion SaaS customers, we had great SaaS HCM wins at British Telecom, BMC Software, Siemens, Credit Agricole, Yahoo and Intuit.

In customer experience, we added 200 customers, with great cloud wins at eBay, KLM Royal Dutch Airlines, Trimble Navigation, Dow Corning, Sprint Nextel, Capital One, US Foods, Acer, Tesco and PACCAR.

I just read you that list just so you get the quality of brand names that are committing to our technology.

So our success in the cloud is significant and undeniable.

Let me share a few facts with you about how we run our cloud.

The cloud runs on our engineered systems.

We have nearly 13,000 VMs, 70 petabytes of storage in seven countries, more than 7.6 million users, and 16.5 billion transactions per day.

Let me switch to our pipeline.

It's healthy.

Our sales organization is already geared to outperform our competitors.

I want to say this again.

Our attrition rates are down.

They have declined.

And by June 7 -- that's roughly two weeks ago -- we had 90% of our territory assignments and quotas done, with sales plans accepted.

That is an absolute record for Oracle.

Now, next week, I want you to stay tuned.

Because we are going to make a series of announcements regarding our success in the cloud and the partnerships we're forming to drive our cloud business forward.

With that, I'll turn it over to Larry so he can touch on some of our exciting developments in hardware.

Thank you, Mark.

In engineering systems, we had a very strong quarter.

Revenue was up approximately 50% as we took considerable market share from our primary competitor, IBM P-Series, which was down 32% in their most recent quarter.

All our Exa products -- Exadata, Exalogic, Exalists -- and the big data appliance, and the Oracle database appliance, all had their best-ever quarters.

In bookings, we sold over 1,200 engineered systems in Q4, including more than 600 Exadatas.

Exalogic was up more than 50% sequentially.

And we sold more than 100 units of Exalytics in the quarter.

For the year, we sold over 3,000 engineered systems, more than all the previous years combined.

Tesco, Fidelity, Siemens, McGraw-Hill, Chicago Mercantile Exchange, Saudi Telecom, to name just a few of the companies that bought engineered systems this past quarter.

Some of SAP's largest customers, giant German industrial companies, bought Exadata, not Hannah, to run their SAP application.

We virtually never see Hannah in the market.

And SAP's Hannah numbers simply don't add up.

Their recent analyst report pointed out that if you believe the Hannah sales growth numbers in SAP's most recent quarterly report, then SAP's application business must have declined 10%.

You decide.

Either Hannah is doing well and SAP's application business is in steep decline, or Hannah's not doing so well but SAP's application business is okay.

You can't have it both ways.

We don't think SAP's Hannah can ever successfully compete with Oracle's Exadata and our other engineered systems in the high performance database market.

Engineered systems are now over one-third of Oracle's hardware revenue.

Our SPARC server line is now completely refreshed.

Our T5 and M5 servers feature the fastest microprocessor in the world, faster than Intel and faster than IBM P7 Plus on numerous industry standard benchmarks.

With the continued rapid growth of our now much-larger engineered systems business, plus our new high-performance SPARC T5 and M5 servers, we just might see overall hardware growth this Q1.

And we will see overall hardware growth for the full fiscal year.

Thank you Larry.

Amber we could now move to the Q & A portion of the call, please?

Yes, thank you.

(Operator Instructions)

Kash Rangan with Merrill Lynch.

Good to see the hardware product and the Fusion reference really do well.

But on the software side, typically Oracle has had very strong make-water finishes -- we've always called it the magic of make-water.

I'm wondering if you could give us a little bit more color, Safra, Mark or Larry, on if you saw any slippage that was specific more so to the applications business, large ticket items, economically more sensitive, if these deals are put on hold.

And how is the linearity shaping up in June?

As you exited the quarter, did you feel a little bit better about how the trends were getting better?

Because we've been hearing about software companies facing difficulties in the months of March and April.

I'm just curious how things shaped up and how you exited the quarter.

Sorry for the bunch of questions, but I really appreciate the color.

I don't know which one of us should start.

As I mentioned in my prepared remarks, we saw some weakness in Pacific region, especially Asia Pacific, especially parts of Latin America, that were that came up right at the end on us.

And that was extremely disappointing for us.

Because May is usually our very big and important month, and it's our big quarter, and it lays out where it did.

We've had a pretty good start, actually, in the other regions.

But it's too soon to tell on -- and that's why my guidance is where it is.

Let me add, it was no specific product.

When we saw weakness, we saw weakness in database, middleware applications -- in all of our software lines.

So it was clearly an economic issue, not a product competitive issue.

The products performance as we expected.

It's just that they didn't reach the ceiling we thought we were going to reach in the quarter.

To add a little bit of color too, Kash.

I think we actually did pretty darn well in Europe.

We actually felt quite good, considering all you read.

You talk about what you read about software companies.

You read a lot about the tech sector in Europe.

And frankly, as we've talked before, the sale force add we've done there has been material, and its helped for us.

We banked on conversion rates being down in Europe.

And frankly, they weren't down as much as we thought.

We executed quite well.

We did fine in the US.

And to Safra's points, really it was Brazil and parts of Asia where we saw the rest of everything sort of behave the way we expected over the course of the year, with the exception of the quarter.

With perhaps the exception of engineered systems to the good, which was better than we expected going in, which led to the hardware performance that we described.

On a number of transactions basis, some of it, to Larry's point, really had to do with the transactions just getting a bit skinnier.

If you looked at the number of transactions -- excuse me -- you wouldn't see that big of delta.

A lot had to do with the average size per transaction.

Which, again, indicates to us certainly a lot of economic issue out there.

Got it, thank you.

And Safra, it does look like you feel a little better based on the guidance, which is a lot better than we would have expected for the upcoming August quarter, for licenses especially.

Yes, well, we saw things pushed off.

I see them closing.

But I do have to keep an eye on what my competitors are reporting and what's going on.

So it's sort of all in there together.

And we feel good with where we're guiding.

Great, thank you.

Next question, please.

Brent Thill with UBS.

Mark, you're adding tremendous sales capacity, and you mentioned the unforced attrition is down.

So why do you think you're not seeing the resulting follow-through in license results?

I certainly understand the comments you made about Asia Pacific.

But it is a small percent of your overall revenue.

And maybe if you could just expand on the ASP in Q3, I think you disclosed that, that was down high-teens as it relates to deals over $3 million.

It seems like the larger deals are still seeing pressure.

If you could just add a little more color, that would be helpful.

Yes, let me just jump in, in front of Mark, and give you our view.

We've been adding a lot of salespeople in the cloud.

So a lot of our additions in Europe and in North America is around our cloud offerings, which we're seeing great growth.

So we think as part of the transition to the cloud, the bulk of the sales adds are not in our traditional on-premises database business or on-premises application business.

The bulk of the adds have been in our cloud businesses, and we will continue to add.

We've hired about 500 salespeople and sales consultants directly out of college this year.

And virtually all of them will go to our cloud businesses, and about 10% of them will go to our Linux business, which is becoming very competitive with Red Hat.

But it's the new businesses that we're in that is absorbing most -- not all -- but most of our sales adds.

Yes, so I think you got, Brent, everything Larry said.

And then add to it that where we have added -- because we are still, even with that add in the cloud, net up in our traditional license areas.

Although it's not all of what we've added, to Larry's points.

But we have seen the benefits.

I'll tell you exactly.

In Europe, we have seen bigger pipelines.

And we've seen the economic pressure on the conversion rate.

And that growth you see in Europe is directly related to the fact that we've added our sales force.

So make no mistake about it.

The growth in our pipeline that you see in Latin America, when you see some of these issues in Brazil, this is what happens when you see an economic environment like this.

You see the pipe go up, you see conversion go down.

If you're going to gain share, you're going to have to be in more deals.

So we are in more deals.

Let me give you a second point.

Historically, when these economies turn, you do not have enough time to re-hire your distribution capability, to take advantage of the change in the economy.

If that pipe is not sitting there when markets get better, you lose out on that expansion.

So this is actually-- it's counterintuitive, I know, to -- this is the right time to be in a position with a broader distribution capability.

I'll add to it, we've been very mindful of our expenses while we've done it.

So when you look at our expense structure, we have taken money from other places and funded the majority of this sales force expansion.

Now, to Larry's point, some of this is now going into, quote-unquote, ARR annual recurring revenue, which we're seeing strong growth, which will pay us dividends as you go out over the next couple years.

Thank you.

Jason Maynard with Wells Fargo.

Two questions.

First, Mark, could we drill down a little bit more into Asia Pacific?

Because if you look at the different regions on a constant currency basis, US and EMEA both actually performed maybe about as expected.

But it's actually when you dive into APAC, the last two quarters, that really fell off the cliff after a strong start of the year.

So I'd love to get a little bit more color, maybe by Australia and some of the different countries in there, what you're seeing.

And then the second question for Larry is just, as you look out the next four quarters, Safra made the comment about the hardware business turning potentially positive in Q1.

What are some of the assumptions that you guys see by product within engineered systems and the SPARC product lines that could get you to that level of actually showing year-over-year hardware product revenue growth?

Okay, multi-part question.

I'll tackle the first part.

I think you're right, by the way, in the way you described the quarter for us.

We saw roughly what we expected in Europe, in fact, a little bit better than what we expected.

And roughly what we expected in the Americas.

Asia -- as you know, there is no real Asia per se.

It's a little different behavior by country.

We continue to see pressure in China, as you read across most of the other tech companies describe.

We saw that.

And we had the effect that Safra mentioned in Australia.

That is both some weakness in the Australian market, which you also see as a read-through in their economy, but frankly going up against a big prior year.

So we had a big prior year in Australia, and we had the economic issue that you saw.

Those are the two markets.

We did fine in Korea and fine in India, overall.

On the hardware side of the question, it's really very simple.

We had a number of businesses of the Sun businesses, the Commodity x86 business, that we have exited and we're pretty much out of.

Reselling other people's storage systems, like Hitachis and LSI Logics, which we're pretty much out of.

And so those declining businesses have finished declining.

We think the businesses that remain -- we've got two big businesses that remain.

One is the SPARC server business, which is now refreshed, and we think it can grow.

So that is not in our assumption for growth.

Our only assumption for growth is that our engineered systems business, which is consistently growing and grew very rapidly this quarter, will continue to grow.

And that alone will drive the overall hardware business into growth.

If we recover -- with our new SPARC line, if that recovers and also shows just a little bit of growth, the growth in hardware will be spectacular.

Next question please?

Heather Bellini with Goldman Sachs.

I was wondering if, Larry, you could help us frame how the upcoming release of 12c could differ from past cycles, in terms of license growth rates.

And I guess the follow-on to that would be related to [pluggable] database containers.

I'm just wondering if you could share with us whether or not that will be part of people's maintenance contracts or whether that will be a paid option.

The 12c is the multi-tenant database.

12c stands for the cloud.

It's the first time a database confers multi-tenancy to the applications that run on the database.

As you know, the cloud business started about 15 years ago with a little company called NetSuite.

And then there came Salesforce and many others.

And what they had to do was build multi-tenancy into the application.

If they wanted to run a lot of customers' data on a small number of servers, and do that economically, they had to build the multi-tenant capability directly into their applications, which had certain problems.

It has security problems.

That means your standard report writers won't work.

A lot of standard tools just won't work because of this multi-tenancy application architecture.

The next phase of multi-tenancy was virtual.

IBMs became a very popular way of sharing hardware, sharing server.

But unfortunately, that has significant overhead.

Much more overhead than going to be NetSuite, Salesforce.com way of doing it in application.

We think the right way to confer multi-tenancy on applications and keep security working and use the hardware very efficiently is to put multi-tenancy at the database layer.

And that's what we've done with 12c.

It is a separately priced option.

Next week we will be announcing technology partnerships with the most important -- let me be clear -- the most largest and most important SaaS companies and infrastructure companies in the cloud.

And they will be using our technology, committing to our technology for years to come.

That's how important we [see] 12c.

We think 12c will be the foundation of a modern cloud where you get multi-tenant applications with a high-degree of security and a high-degree of efficiency, where you don't have to sacrifice one for the other.

Again, we have -- again, I would call them startling series of announcements with companies like Salesforce.com, NetSuite, Microsoft.

All that happens next week, we will be giving you the details.

These partnerships in the cloud I think will reshape the cloud and reshape the perception of Oracle technology in the cloud.

12c, in other words, is the most important technology we ever developed for this new generation of cloud computing.

Maybe I'd add something a little more mundane than that, is that our database options business was really strong in the quarter, Heather.

When you look at GoldenGate security compression, very strong performance for us in the quarter.

And certainly when you see some of the people that have jumped on these capabilities -- database enterprise managers [strong load] in the quarter.

Our database options business in the quarter -- very strong.

Great, thank you.

Next question, please?

Rick Sherlund with Nomura Securities.

Larry, just two questions for you, if you can update us on a couple things.

First, you talked at OpenWorld about some cloud services.

I know you've got private/public hybrid cloud, you articulated.

Wonder if you could update us on what's happening there.

And second, in terms of in-memory capabilities.

Just reading the trades, there's been a lot of speculation that you're going to deliver some kind of in-memory capabilities that are compatible with the Oracle database.

If you could share any thoughts with us on that.

Okay, Rick, happy to.

Oracle participates at all three layers of cloud.

We're really a unique cloud Company.

We are, as Mark pointed out, the second largest SaaS provider in the world.

We added 500 new SaaS customers alone, 500 new logos at the SaaS layer, this past quarter.

We actually had more -- and let me be clear.

Not Taleo [complex].

We had more new Fusion CRM.

I'll be very clear.

Take out Taleo, don't count it.

Just look at Fusion HCM.

Look at our Fusion HCM customers.

We added more new Fusion core HCM customers last quarter than Workday added their HCM plus ERP customers.

That's with Fusion, not Taleo.

We're growing very fast in the cloud, and especially the HCM cloud.

Especially Fusion HCM.

And as Mark pointed out, we're larger in SaaS than anyone but Salesforce.com.

We're larger than Workday and SAP combined.

Okay, but that's not the only layer we compete in, SaaS.

We compete at the platform layer.

And if you look at Oracle historically, that's where you'd expect us to be strongest.

These are our two brands in PaaS.

The Oracle database and Java.

Those are the two most important platforms on the face of the earth for building applications.

They -- both products are dominant.

There are more than 9 million Java developers.

On our platform business, our cloud platform business, we have over 5,000 customers on our cloud.

You know, Mark mentioned our cloud is over 6,000 servers, 12,000 VMs, almost 70 petabytes of storage in 11 locations around the world, almost 8 million users per day, and over 16 billion transactions per day.

Mark mentioned all those numbers.

But again, we have over 34 -- we announced our platform service last OpenWorld.

And now we have over 3,500 -- or 3,400 customers -- in the Oracle database cloud, and another 1,700 in the Java cloud.

And that's just the beginning.

We think our PaaS business is one of our huge competitive advantages.

Where you tend to think of -- the big cloud players are either in SaaS, like a Salesforce.com, or an infrastructure like Amazon.

You really don't think of a real strong PaaS player.

Well, that's where we think we have a huge advantage.

And we think that accrues to our big SaaS customers.

Because when you buy a SaaS product, it doesn't mean you're not going to build other little things yourself in the cloud to go along with the SaaS products you buy.

And with Salesforce.com, which -- they are the market leader.

And [a great delivery spector] what Marc Benioff has achieved over there.

I think he's done a good job.

But they started a long time ago.

And they have a platform called Force.com, which is not based on industry standards.

So when you make additions to Salesforce.com, you write in Salesforce's proprietary platforms.

When you make additions to our SaaS applications, you use the Oracle database and Java, the industry standards.

So we think customers are going to look at the entire cloud and assess the quality of the applications, SaaS, the quality of the platform.

And we don't think any of the big cloud players can compete with us at the platform layer.

The quality of the infrastructure which Mark mentioned earlier, which is our engineered systems which, again, we think is a big competitive.

So the combination of 12c for the cloud, which is going to be -- which we think will be adopted by most of the big cloud players, as well as our corporate customers as they build clouds inside their firewall, is huge.

And we think the advantage that we -- one other advantage that we offer is the clouds that our customers are going to run internally, made of Oracle and Java, is the same cloud that we offer in our public cloud.

So they can build applications and move them back and forth.

They can build an application in Oracle and Java on our public cloud and move it back to their private cloud.

They can take an application that runs in their private cloud and move to the public cloud.

They can do test and development in the public cloud and run it in their private cloud.

Because our cloud is based on industry standards.

Our platform is based on industry standards.

We're the only Company that's doing that.

Very optimistic about our ability to compete in the cloud.

Again, I said earlier, we're going through this transition where we moved a lot of our sales guys -- again, not all -- into the cloud.

So we're moving aggressively to sell not only our applications, but our database and Java and our infrastructure in the cloud.

We're investing a lot of engineering.

We're investing a lot in sales.

Because we think the opportunity is gigantic, and we're well-positioned with a key new enabling technology called Oracle 12c database.

Operator, next call, please -- or question, please?

Walter Pritchard with Citi.

Safra, I'm wondering if you could -- we heard a lot about the cloud here in SaaS.

And I'm wondering if you could help us understand, both near-term and longer-term, the impact on license revenue, how that may be depressing what we're seeing on that end?

Well, at this point the reality is that most of our customers are application customers that are taking some cloud offerings, are doing it as a complimentary offering.

And to the extent -- to what they've already got on-site.

So it's not necessarily -- now, if all of our application customers overnight, all -- gosh, I don't know, 10,000 of them overnight switch to [fast], then that might have an effect.

But we have so many customers, and the dynamics are such that many are adding on.

And some are adding on on-premise, some are adding on on-cloud, and some of them are replacing on-premise with cloud.

We have such a large base that net-net, we have growth.

So that's the dynamic right now.

In the event that everyone tomorrow switched over, well, that would have a different effect.

But that's not likely to happen.

Let me add my comment, which is, we think when someone chooses an Oracle application in the cloud versus an Oracle application on-premise, we make more money over time.

Now, the order that revenue comes in is a little different, because we take it ratably rather than a big chunk up front.

But we think when someone becomes a cloud customer, that is an economically more valuable customer to us over time than when someone buys our software on-premise.

So we think over reasonable terms, we benefit tremendously from the movement to the cloud.

Yes, add to it, Walter, there's other dynamics at play here.

Because of the way our software is architected, we can sell by module.

So in many ways, it opens up brand new markets to us.

We can go sell to an SAP customer a module of HCM.

They can buy recruiting from us.

They don't have to, quote-unquote, rip and replace.

Somebody like a Workday has to do a lot more rip and replace than we would.

We can go in, supplement many of our application users today, with their core on-premise app, with new modules of our SaaS Fusion application.

So actually, in some ways, long-run, we're going to have to go through the ARR phase, where we start building up our ARR as we go.

But it opens up new markets that we haven't had available to us before.

Thank you.

Next question, please?

Phil Winslow with Credit Suisse.

Just got two questions, actually.

First, back on the hardware side.

Obviously we talk a lot about engineered systems.

But wonder if you could give us an update on the M5 and the T5.

I know it's early.

But just what are you hearing from customers about those two new process areas and sets of servers.

And then, flipping gears back to the software front, Mark, I know the two of us talked about your Customer Experience management solutions, from CRM to marketing to commerce.

Just how is that set of products doing?

Then, with some of the changes competitively out there with sales just buying things like Target and [Hyper] is going to SAP, just how you think your product line is set up there?

Okay, I'll start with the first part of your question, which was hardware.

The T-Series is growing nicely.

And again, I mentioned that's not part of our assumption for growth for hardware the entire year.

That's heavily weighted to engineered systems, Exadata, SPARC SuperCluster, et cetera.

But T is growing nicely.

And there's huge interest in our M-Series machine.

The interesting thing about the M5 as opposed to the T5, the M5 has 32 terabytes of DRAM.

It is designed to be an in-memory machine.

We will now at the end of the year -- that Oracle 12.1c is an in-memory database.

And it is designed to work exceedingly well with our M-Series machines, again.

Which have more memory, by the way, than any other computer on planet earth.

It's an SMP machine with 32 sockets and 32 terabytes of DRAM.

And we have designed that machine in concert with the next version of our database, which comes out at the end of the year.

Which is a vertical columnar-compressed, in-memory high-speed -- in-memory vertical database.

And we think -- one of the reasons I was very confident SAP Hannah could never compete with Oracle over the long term is because of 12.1c.

And again, we combine that software technology with our latest M-Series in-memory -- large-scale in-memory machine.

And we think nothing can touch it.

And by the way, that machine is not very expensive.

Yes, and to add to it, T5 has taken off faster than T4.

T4 -- we talked about the growth we seen in T4.

Well, we've seen the reduction in M, which is fundamentally what's happened to the SPARC line.

The T5 -- and that's early days still.

So we're going to have to see how it unfolds.

But I'd say, very encouraging from the numbers we saw, both in the quarter on orders and in the pipe.

And there is a large install base of SPARC that's out there for us to go sell into, particularly on the high end.

To your question -- I think your question was on ATG and Endeca.

That wire, which is basically the foundation of our commerce server in what we'll call our customer experience -- very strong numbers.

We just don't lose deals.

So at the end of the day, when you get into that space -- and you've seen it particularly, too, in the retail industry, many of the big retailers that are focusing on how to connect to their customer, how to engage the customer, how they cross-sell and up-sell to that customer, that's at the core fabric of what they deploy.

We expect to see that same sort of behavior in the telecommunications industry, financial services industry.

And we love our position.

And we don't believe any effect of our competitors [there's bites on] SAP's acquisition or what Salesforce has done.

Remember one more time, the leader in marketing automation software is Oracle.

Eloqua is the leader.

So it is not anybody else.

And we got a head start, and we did very well.

And I mentioned in my comments, Eloqua did very well in the quarter in terms of its ARR.

So we like our aggregate hand.

We like our position with -- right now on the service side.

We like our position on the commerce side with ATG.

We like our position on the marketing side with Eloqua.

So we feel good about where we sit.

Yes, let me just summarize what Mark said.

Where you think of Salesforce.com as the company that has a very strong foothold in companies that sell B2B, we think we have an equally strong foothold in companies that sell B2C.

So while we think we're going to be -- aggressively compete with Salesforce, where we think we have huge competitive advantage, where our number one competitor actually turns out to be IBM in that space.

We just don't lose deals to IBM and Ecommerce.

Next question, please?

Keith Weiss with Morgan Stanley.

Maybe a last one for Safra.

In terms of the guidance into Q1, can you give us a little bit of color in terms of the conservativism you used in setting that guide?

Maybe talk a little about closed rates assumptions and how you're thinking about -- how you thought about that guide?

Yes, well, as I said, first of all, I -- as you know -- I get a roll-up from the field.

And I look at the different closed rates that we've had historically, and the numbers that we're using right now assume a slightly lower closed rate than we have historically and takes into account the difference we've been experiencing, especially this quarter and in Q3.

I have to know what's going on with our competitors.

And since -- even deals that didn't close this quarter, they were not lost to competitors.

They were either pushed off or -- what also shows up in closed rates -- or they became smaller by a certain percentage.

And so that's really what we apply.

So I'm not going to quantify it for you, but I've assumed a few points lower than would be typical for a Q1, especially since a number of the Q4 deals, especially, have closed already.

So I just had to take into account what we've been seeing for the past couple of quarters and apply that to pipeline.

Excellent, very helpful.

Okay.

That does conclude our question-and-answer session.

I would now like to turn the conference back over to Ken Bond for any additional or closing remarks.

Thank you, operator.

That does conclude our call.

If you have any questions, please feel free to call the Investor Relations Department.

Thank you for joining the call.

Turn it back to the operator for closing now.

Thank you.

That does conclude our conference.

You may now disconnect.