甲骨文 (ORCL) 2015 Q2 法說會逐字稿

Welcome to Oracle's second-quarter fiscal 2015 earnings call.

As a reminder, this call is being recorded for replay purposes.

I'd like to now turn the call over to Ken Bond, Vice President of Investor Relations.

Thank you, operator.

Good afternoon, everyone, and welcome to Oracle's second-quarter fiscal year 2015 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 Executive Chairman and Chief Technology Officer, Larry Ellison and CEOs Safra Catz and 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 these 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 any 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 for public release any revisions to these forward-looking statements in light of new information or future events.

Before taking questions, 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 Q2.

I'll then review guidance for Q3 and turn the call over to Larry and Mark for their comments.

Clearly we are very pleased with our results, as hardware and total revenue were both above my CD guidance, while total software was up at the high end.

Cloud grew 47%, on-premise software licenses and support grew 6%, hardware systems grew 4% and total revenue grew 7% in constant currency.

The as-reported numbers were heavily impacted by the strengthening of the US dollar in comparison to other currencies.

Total revenues saw a 4% currency headwind, which was double what it was at the time of my guidance.

Software and cloud, as well as hardware systems, saw growth rates affected by 3%.

Currencies continue to move significantly, so my comments today are generally going to reflect constant dollar growth rates.

Total cloud revenue was $519 million, growing 47% with cloud SaaS and PaaS revenue of $364 million up 41% from last year and more than double last year's growth.

The cloud bookings momentum of several quarters is now helping drive SaaS and PaaS revenue growth.

When bookings turn into revenue depends on many factors, but as I reviewed the numbers over the last few quarters, one thing is clear.

The acceleration in the business bodes very well for our future.

Cloud infrastructure as a service revenue was $155 million, up 62% but due in part to prior year compares being low.

Overall our cloud results were better than expected as we're clearly growing faster than Salesforce and we're more than three times the size of Workday.

Our goal remains to be bigger and grow faster in the cloud than both companies while improving our already high level of profitability.

Total software revenues were $7.3 billion, up 8% from last year.

Software updates and product support revenues drove nearly half of total Company revenue at $4.8 billion, up 9% from last year.

Attach and renewal rates remain at their usual high levels as our growing install base of customers continue to power earnings and cash flow.

New software license revenues were $2 billion.

Looking at GAAP software and cloud results by region, the Americas grew 8% with North America database growing double-digits and very strong cloud growth.

EMEA grew 9%, with cloud growth of more than 80% and Asia Pacific grew 7% powered by Japan.

Overall the hardware business, including hardware support, grew 4% with hardware system product revenue of $717 million and hardware support revenue of $619 million.

Our engineered systems saw solid growth with particular strength in both Exalogic and Big Data Appliance as we continue to gain share.

For the Company, total revenue for the quarter was $9.6 billion, up 7% from last year.

Non-GAAP operating income was $4.4 billion, also up 7% from last year and the operating margin was unchanged at 46%.

Excluding MICROS, both hardware gross margin and operating margin expanded by more than 1%.

That we're able to maintain our industry-leading operating margins with MICROS now part of the business, while growing our cloud business 47% is a testimony to the strength of our business model.

The non-GAAP tax rate for the quarter was 24.3%; that's higher than my guidance of 23%.

And EPS was $0.69 in US dollars.

The GAAP tax rate was 23.5%, a point higher than my guidance.

And GAAP EPS for the quarter was $0.56 in US dollars.

The higher tax rate reduced EPS for both GAAP and non-GAAP by $0.01.

This was a result of revenue mix by region, driven primarily by foreign currency impact and a couple of other small factors.

Free cash flow over the last four quarters was down very slightly at $14.5 billion as we increased CapEx spending a little bit.

Just so that you get a sense of the size here, CapEx spending over the last four quarters is about $150 million higher than that same four quarters the previous year.

We now have nearly $45 billion in cash and marketable securities.

Net of debt, our cash position is approximately $12 billion.

As we've said before, we are committed to returning value to our shareholders through technical innovation, strategic acquisition, stock repurchases, prudent use of debt and a dividend.

In terms of acquisitions, we continue to focus on finding the right companies at the right valuations, and both are critically important.

This quarter we repurchased 52.8 million shares for a total of $2.1 billion.

Over the last 12 months we've repurchased more than 200 million shares for a total of $8.1 billion, paid out dividends of $2.1 billion, for a total that is more than 70% of our free cash flow.

The Board of Directors declared a quarterly dividend of $0.12 per share.

Now to the guidance.

As you can imagine, we feel very good about our prospects and our performance.

But I have to tell you, I'm always keeping an eye on the situation in the macro environment, especially abroad.

Additionally, given the unusually high volatility in exchange rates, we expect currency will affect revenue by more than 4% and EPS by $0.04, if rates stay as they did -- as they are just about now.

But as we just don't know how much, I'm going to provide constant currency guidance today.

SaaS and PaaS on a non-GAAP basis is expected to grow 30% to 34% in constant currency.

On a GAAP basis, SaaS and PaaS revenue is expected to grow 31% to 35%.

Cloud IaaS on a GAAP and non-GAAP basis is expected to grow 29% to 33%.

Software and cloud revenue on a GAAP and non-GAAP basis, including SaaS and PaaS and IaaS, new software license and software support, is expected to grow between 5% to 8%.

Hardware system revenue on a GAAP and non-GAAP basis, which includes hardware system products and hardware systems support, is expected to be somewhere between negative 2% and positive 8% in constant currency.

Total revenue growth on a GAAP and non-GAAP basis is expected to range from 4% to 8%.

Non-GAAP EPS is expected to be somewhere between $0.69 and $0.74.

Again, all this in constant currency.

GAAP EPS is expected to be somewhere between $0.55 and $0.60.

Now, this guidance assumes a GAAP tax rate of 23% and a non-GAAP tax rate of 24%, but this too may end up being different, especially as tax rate is very heavily impacted by the mix of earnings, which is impacted by currency.

With that, I'm going to turn this over to Larry for his comments.

Thank you, Safra.

As Oracle's cloud business gets bigger, our growth rate is going up.

As our competitors' cloud businesses get bigger, they're growth rates are going down.

This has big implications I'd like to explain.

In Q2 we booked more than $170 million in new SaaS and PaaS annually recurring revenue, or ARR.

In other words, we sold over $170 million of new SaaS and PaaS annual subscriptions this past quarter.

In Q4 of this fiscal year, we expect to sell more than $250 million of new annual SaaS and PaaS subscriptions.

That means during our next fiscal year we will sell well over $1 billion of new SaaS and PaaS annual subscriptions.

What makes this particularly interesting is that next year Oracle will sell about the same total dollar amount of new SaaS and PaaS business as cloud market leader, Salesforce.com.

Stay tuned; it's going to be close.

We're catching up to them and we're catching up very quickly.

Mark, over to you.

Thank you.

Okay, let me just give you a couple numbers and a few names and then we'll go to your questions.

SaaS PaaS revenue, as Safra mentioned, grew 41% in CD.

ERP EPM revenue grew more than 80%.

CX revenue grew nearly 50%.

I think that company Larry mentioned, Salesforce.com, reported 28%.

CX marketing automation grew 200% in revenue.

Bookings grew nearly 150%.

I want to say it one more time; it was 150%.

Fusion bookings -- ERP, HCM, and sales force automation all grew triple-digits.

All pillars saw booking growths in excess of 50%.

We added more than 860 SaaS customers, with more than 230 that subscribed to more than one pillar when they bought a cloud subscription from us.

Nearly 650 existing customers expanded their cloud services in the quarter.

In HCM we added 230 new customers.

In CX, more than 460 new customers.

In ERP EPM 250 new customers.

In one quarter we added 2.5 times Workday's entire install base.

Nearly 150 of the new ERP customers did not have any Oracle ERP before they bought cloud subscription from Oracle in the quarter.

Overall Fusion had triple-digit bookings growth, triple-digit revenue growth.

We had over 125 go lives in Q2.

That's SaaS.

In PaaS we had a breakout quarter.

We had 150 brand new PaaS customers.

As many of you know, we announced PaaS at Oracle OpenWorld, the end of September.

Three quarters subscribed to multiple PaaS services.

The PaaS opportunity is big, given the size of our install base, and you might argue is big or bigger than the SaaS opportunity.

Let me read you a few names from the quarter.

In HR, Fidelity National Financial, Pella, Siemens, Barnes & Noble, Baylor Health Care System, DIRECTV, Honeywell, Johnson & Johnson, Kaiser, Nokia, Northrup Grumman, Societe Generale, Skanska.

In sales service clouds, Flowserve, 3M, Adidas, Equifax, DIRECTV, Fiat, Tellus, United Parcel Service, Visa, Yahoo.

Big server, Cypress Semiconductor.

In marketing cloud, Bloomberg, Equifax, Fiat, Honeywell, Ricoh, Siemens, Telefonica, Visa, Emerson, Kroger, LEGO Systems.

In ERP EPM cloud, Odebrecht in Brazil, HJ Heinz, InBev, Lafarge, [Michael Fraker], and I don't have more time to read more.

These are a huge list of logos that we gained in the quarter.

A couple other comments premise software grew 6% in CD.

I continue to expect this business to grow nicely while our cloud continues to maintain hyper-growth.

Moving quickly, just to mention hardware.

Engineered systems bookings grew double-digits.

Bookings for Exalogic, SuperCluster and Big Data Appliance to Safra's point all grew more than 50%.

And I just want to make sure, for those of you that don't listen to traditional hardware companies' calls, it is clear we are taking substantive market share in hardware.

And wrapping up, our cloud revenue is already at a $2 billion rate.

I said at the financial analysts' meeting, our SaaS pipeline is large.

Since then it's gotten bigger.

We out-paced our bookings growth plan for the first half of the year and set our sights on 100% bookings growth for Q3.

With that, we will take your questions.

(Operator Instructions)

Rick Sherlund, Nomura Securities.

Thank you for taking the question.

Good quarter.

On the cloud side, I'm curious as far as the new versus existing customers.

I think we've got some metrics there.

Could you give us a sense of, are you seeing a conversion from existing on-prem customers?

Or is most of this new business that you're picking up?

Well, first let's go through it by pillar because I think that's the way you have to do it.

In marketing everything is really new.

We don't have a marketing install base.

So when we give you those numbers, Rick, they're really everything coming is in that new logo.

Now it may be in a company that's got Oracle product, but it's all net new.

Most of our sales cloud is net new.

There is some Siebel conversion, but as I mentioned at the financial analyst meeting, our Siebel install base, when you look at the support number, is fairly stable.

So we have a lot of net new even in, if you will, sales cloud.

We have a mix in HR, both conversion and net new.

And I think the important thing you saw this quarter as we talked before, Rick, I think it's not just the fact that our strategy isn't be just best of breed in each of these apps, but also to have a suite of capability.

And that's why wanted to mention the multi-pillar deals that occurred in Q2.

Because we have customers now that are not just buying ERP from us, but they're buying ERP and HR.

They're buying sales cloud and marketing.

And we also get the opportunity, as you know, to go back into that install base once we've got one app, and sell a second app, a third app, a fourth app.

So it was an exciting quarter across a number of those metrics.

I'd like just to add -- let me add one thing.

As Mark said, you got to take it pillar by pillar.

You also have to take it layer by layer in the cloud.

Where a lot of our SaaS business are brand new logos, people who have never done business with Oracle before.

You would expect that in PaaS, it's virtually all our install base.

But the reason being almost every moderate-sized company in the world is already an Oracle user.

The PaaS we are selling into the install base, as Mark said, SaaS is a bit of a mix, depending on pillar.

And Larry, you're seeing customers pivoting now to PaaS and infrastructure-as-a-service.

If you could maybe spend a moment on that.

Again, what we are pushing very hard is PaaS as opposed to infrastructure-as-a-service.

That's where our huge differentiation is.

That's where we give you so much more automation in terms of database tuning and installation and backup and recovery and logging and security.

So our big push is into PaaS.

We are in infrastructure-as-a-service, which is the low-cost commodity business where we have the same pricing as Amazon and Google and the rest.

We're in that because when our customers, as Mark said earlier, they buy one pillar, they'll buy another.

I can talk about layers in the cloud, where they'll by a few SaaS applications.

They'll by some PaaS and they'll buy some infrastructure-as-a-service, as they want to have a unified security model in a PaaS network to interconnect all of these pieces.

Thank you.

Thank you Rick.

Next question please.

Jason Maynard, Wells Fargo.

Hey, good afternoon, guys.

I have two questions.

One, I want to follow up on the cloud piece and then I had a question on the database.

On the cloud piece, Larry, you talked about $1 billion in bookings.

I just want to make sure that I'm reading this correctly.

That's an incremental $1 billion on top of your current --

All new business.

That's another that we will have sold, when you annualize it.

This is not total contract value.

This is in terms of annual subscription rates.

We will sell next fiscal year in excess.

We expect to sell well in excess of $1 billion of new annual subscriptions.

And that's on top of the current --

Which is about what Salesforce will be selling in their next fiscal year.

I think they're at $1.1 billion, something like that, best as we can estimate.

We think we have a good chance of passing them.

I don't know if we could pass them or catch them, but it's getting very close.

We're in that ballpark.

So we're selling new business at the same rate as the market leader next year, which I think -- again, we're experiencing hyper-growth.

Salesforce is slowing down; we are speeding up.

They're only twice as big as us.

In round numbers, they're $4 billion, we're $2 billion.

But we're growing a lot faster.

And we have a lot more products.

And we have a large install base to sell into.

So we think, again I said, I know it's just words, we said we think we can become number one in the cloud.

We think we will be number one in the cloud and we will be number one in cloud very quickly.

And, Jason, to add to your question, most of all of our comments that Larry made, that I made, Safra, we're all talking about ARR but not PCV.

So there's not a multiplier on it.

Our average contract value is actually longer than annual.

But we're talking in comparisons of ARR.

Yes, IBM will announce $1 billion deal over 10 years.

But that $1 billion deal to us would be $100 million if it's a 10-year deal and it's evenly distributed.

We would count that as $100 million of ARR, or $100 million over one year.

We annualize all of this stuff.

How much revenue -- once they're installed and running, and there is a delay between when we book something and when we start collecting revenue.

Because we don't collect revenue until the users are up and running and it's implemented.

Okay, so there is that delay.

But once they're up and running, it's an annualized number we're giving you.

Not a total contract value number we're giving you.

I got that part.

But I also want to make sure I'm clear.

This is incremental on top of your current $2 billion-plus run rate?

Of course.

And it should be a lot more than $2 billion, by the way, because that's next fiscal year.

So we're not going to end this fiscal year still at $2 billion.

That will grow.

You have bookings that have been booked that have yet to be provisioned.

Therefore you will have a bigger base on which those bookings will go.

At the same time, the bookings we get in the future will take time to provision as they go forward.

So it's a layered model as you build up on the revenue, Jason.

Great.

I want to ask one thing on the database business.

Larry, a lot of customers in the past have been conditioned to wait for R2 of the database to come out.

This time around, you guys made a major release this past summer with In-Memory option.

I'd be curious to get your take on, what are you seeing in terms of customer adoption?

Are we starting to see folks say, hey we're going to move to this incremental dot release that came out, I think it was June-July timeframe?

Or are some folks still waiting for R2?

What's the advice or the guidance from Oracle in terms of when customers should migrate to 12c?

Thanks.

Okay.

So there are two major pieces of our new database release.

One, as you mentioned, is the In-Memory option, but that's not the only driving factor of people upgrading their database version.

The other is multi-tenancy, the multitenant option, which is appropriate for the cloud.

It allows them to, again, convert all of their existing Oracle applications and make them multitenant applications while preserving security and reliability.

A better way than do multi-tenancy at the application layer.

Anyway, we think those two features in concert will drive a much more rapid adoption of the Oracle database over the next couple of years.

So we think our database business is going to have a very strong 24 months coming up.

Yes, and Jason, the options did very, very well in the quarter.

There's no question customers are extremely interested and are buying the options.

All right, great.

Thank you, guys, appreciate the answers.

Kash Rangan, Bank of America.

Hi, happy holidays and good news from Oracle to hear that.

Can you talk about the net new cloud bookings and what exactly is driving that?

If you can give us color by product, is it HCM or SRM?

Or, to Larry's point, the layer.

Is it the PaaS or the SaaS layer or geographies?

And in particular, Larry, if you could drill into the PaaS layer and help us understand is it a net new market?

Or could it come at the expense of the traditional database business, which maybe gets cannibalized?

Or maybe not?

Just wanted to get your thoughts on it.

Thank you.

Mark will probably give you a more detailed answer, but my answer is yes.

(laughter) It's all of the above.

One is that we have such a broad -- if you look at our product line versus our competitors, we're Salesforce's only real competitor in sales automation.

We are the leader in marketing automation.

We're fighting hard to be the leader in service automation, where our competitor is Salesforce.com.

We're Workday's only real competitor in HCM.

And we think we've passed them in HCM, but you can make an argument we're both fighting hard in HCM.

But we're killing Workday in ERP.

If you conclude ERP and EPM together, it's planning, budgeting, performance management and the cloud ERP, all of that.

We sold 2 1/2 times more customers this past quarter than they've done in the life of their company.

We are the clear leader in mid-range and high-end ERP with no competition from Workday.

They're just not there.

Or when they're there, they're losing every time.

So we are very strong in HCM.

We are very strong in ERP.

We're the leader in ERP, we're the leader in marketing, we're the leader in EPM.

We are contending for leadership in service automation and in HCM.

And we are the guys in second place behind Salesforce in sales force automation.

But everyplace else except for that one segment, that one niche, we're the leader or fighting to be the leader.

So we've have got incredible breadth of SaaS products.

Now our SaaS products are built on top of Java and the Oracle database, the platform.

And companies want to make extensions to the applications.

They want to link the applications to their existing applications, and so on.

Using our platform makes a lot more sense than using a proprietary platform from Salesforce.com.

We don't think it's a fair fight.

By the way, Salesforce.com uses our platform to build their applications.

They just can't sell our platform as a part of their service offering to their customers, because they have no license to do so.

We can sell our platform.

We do sell our platform.

So we sell the same platform that we build on to our customers.

So we've seen a huge amount of interest, both from our SaaS customers using our platform and also this huge install base we have in the database business.

Interested moving tasks and development and certain aspects of their database work to the cloud.

Not everything but a part of it, a bit of a hybrid.

We're seeing that these customers now experimenting.

They're at the experiment level.

But the potential for this, as Mark said, is probably bigger than our SaaS business.

I think we're going to be by far the leading SaaS Company in the cloud.

Look at our product portfolio.

Kash, who wins in all of these battles?

The suite vendors always beat the point solution guys.

It's happened in every generation of computing, where the end user, the customer, doesn't want to be the integrator of 30 separate applications from 30 separate vendors.

No different now, just all on the cloud now.

Same problem.

They don't want to integrate a lot of different stuff.

We have all the stuff pre-integrated.

We think we are in great position.

We're seeing hyper-growth at SaaS.

We're seeing hyper-growth in PaaS.

We're getting bigger and our growth rates are getting higher.

That's unlike anyone else in the cloud business.

Thanks and happy holidays.

Yes, and listen, add to it the products are more mature.

We're on release 9 of our SaaS products, right?

Not only our products more mature, we have more of them.

Our suite is broader.

We've added sales capacity before we had -- 2 1/2 years ago.

So realigning the sales force, adding capacity.

They're trained.

They're getting more training and we have references.

When you add the familiarity now of the SI community to it, you just have a lot of factors.

There's no one of these factors in isolation.

It's the culmination of a lot of work over a lot of period of time.

Next question please.

Heather Bellini, Goldman Sachs.

Great, thank you.

Mark, I was wondering if you could share with us, your performance this quarter, given what's going on with currency was definitely better than I think people were expecting on a constant currency basis, even.

I'm wondering how much of that is due, do you think, maybe the US environment, a deal-closing environment getting a little bit better from a macro perspective?

And how much of it is due to sales force efficiency improvement?

You're saying macro versus us?

No, macro in the US seems to be doing better.

How much of it is due to -- is your sales force productivity improving?

And that's what's driving kind of the confidence and the guidance for next quarter?

And your results on a constant currency basis this quarter?

Because I think versus what everyone was thinking, things are looking better.

Well, I don't think anything changed from what we had been seeing for a while.

The only difference is we saw it in pipeline.

We saw it in proposal and now it's turned into actual numbers and performance.

So I don't think this is an event.

I think this is a set of activities that have occurred over a long period of time, as I tried to reference in my previous question.

I would not take some short-term improvement in the US macro and turn that into that's why Oracle had great cloud bookings in Q2.

I think our performance was driven by exactly the phenomena that I described.

Better -- great products, more mature products, better references, lots of capacity in our sales force.

It's better trained; it's out in the market and winning deals.

That's what I think drove it.

Yes, I'd like to second what Mark said, is we're just further up the learning curve on everything.

Our sales management team is terrific.

We've realigned our sales force against our secular competitors.

So we have an HCM sales force that goes up against Workday.

We have a sales automation sales force that goes up against Salesforce.com.

And we have a service automation sales force that goes up, but they're different, that goes up against Salesforce.com.

We have a marketing automation sales force.

We have an ERP sales force.

We have an EPM sales force.

We have all of these specialized sales forces and we created those, actually Mark created those several years ago.

And we've been hiring staffing and they are much more mature.

We started working on some of these products, a lot of these products we built them internally.

We started about 10 years ago.

After 10 years of developments, the Fusion applications, again Mark said we're in release 9, and they're getting really good.

The user interface is getting good.

We have a lot of good customer feedback, again, over a period of years.

We've improved the UIs.

We've improved that multinational capability.

We've improved security in the cloud.

I think we're the leader in application security in the cloud.

So it's this walking up the learning curve, and at some point it becomes visible to everybody.

I think we've been -- Mark a few quarters ago, talked about the size of the pipeline looked pretty good, kind of stunning.

But I know the next thing is it turns into bookings.

The next thing it turns into revenue.

The next thing is we have more revenue than anyone else in the cloud.

And I think that's the next shoe that's going to drop.

Great, thank you.

Thanks, Heather.

John DiFucci, Jefferies and Company.

Thanks.

I have a question for Safra.

Safra, as you said, CapEx has creeped up a little bit.

It's up 26% on a trailing 12-month basis, or about $150 million.

Non-GAAP operating margins have really held steady, as has free cash flow.

But as you transition to more cloud-based business, should we expect free cash flow to trail off a bit, even if it's just temporarily?

It's all so tiny; these amounts are so small in the scheme of what's going on.

I think it's unusual that I would even call out $150 million increase year over year of capital expenditure.

But since you guys aren't even used to it, I figured, all right, let me call it out as small as it is.

Obviously in the launch for PaaS and the volumes that we are expecting, we made our investments.

As we expand, we'll continue, but these are really tiny numbers and are totally dwarfed by our $14 billion-plus in free cash flow.

I'm not sure other companies would've even mentioned it.

You're probably asking me because other companies make these enormous announcements of spending billions and billions.

You have to remember, I mentioned it at the financial analyst day, we control almost our entire supply chain.

You see, we're very close to starting with sand and then we have computers.

We make almost everything.

And as a result, we get everything at the best possible prices and economies of scale.

We are already a very large Company, so we already had huge investments over the years, so we have a lot of capacity.

Again, I would not fret on this really small number.

Because I'm not planning on making some announcement that we're going to spend billions.

Because we've already spent, and it's just showing up little teeny bitties at a time.

Okay, thanks, that's helpful.

If I could, a quick tactical follow-up and it's regards to guidance.

We can go through our own calc for foreign exchange effects to get a reported number relative to the constant currency guidance, but generally what's the delta in growth for the top line between constant currency and reported numbers that you have?

In the past quarter that we just had?

No, actually I'm talking about guidance, yes.

Yes, well, I didn't give -- listen, the rates right now compared to last year, depending on which line item, because it depends for us geographic distribution and all of those things, it's over 4%.

In some areas it approaches 5%.

A number of currencies really collapsed in comparison to the dollar.

So if that's what you're asking me, I think I'm answering.

If things stayed as they are today, it is over 4% of impact in many of the numbers you guys follow.

Okay, great, that's helpful.

Thank you.

Brent Thill, UBS.

Good afternoon.

Safra, on operating margins there's been a lot of focus if you can continue to drive steady operating margin improvement despite this transition in the cloud.

I think you were clear to John that the investments are already in.

As you look at the next level of operational improvement, where do you see the biggest levers?

As you transition into the cloud, as more of the business gets there, is this inherently a more profitable business from your perspective, as you get to that side?

Oh yes.

Oh yes.

There's no question.

We've done the analysis and I think I shared at least some of it with you all, during the financial analyst day.

But there is no question that, at scale, we continue to improve our margins dramatically.

Taking advantage of both our economies of scale and our controls, almost our entire supply chain and really our intense automation, which really ultimately results in our being very, very price competitive and allowing our customers to spend much, much less all in than they ever did, and yet we get a much more significant percentage of their wallet share.

So we expect as we continue to go, I'm very pleased with where margins laid out this quarter.

And as we get to volume, I actually think we will do better, continue to do better.

Thank you.

Phil Winslow, Credit Suisse.

Hi, thanks for taking my questions.

I'd like to echo the congratulations for this quarter.

Most people have touched on a lot of the other lines of business so far, but I want to ask a question about hardware.

You guys exceeded your guidance this quarter, and guiding for growth year over year again next quarter.

Give us a sense for what you're seeing in that hardware line.

Are we finally hitting that point that you all have talked about?

That the stuff that you're not focused on is getting small enough and declining less that the growth areas are starting to show through?

How we should think about that would be great.

Well, I think you should think about it that we are just winning.

That would be the overriding thing I would take away.

You look at some of the markets we're in, particularly in computers that are scale computers, the $20,000, $25,000 and up category that you typically see most of the research firms.

We are gaining startling amounts of share.

You're talking about growth rate, gains of share that are 7, 8, 9, 10 points of share gain.

If you ask what the drivers are underneath it, they're what we've been talking about before.

We had double-digit bookings growth in engineered systems, as I described a few minutes earlier.

Safra and I both mentioned of couple of products.

We've had very good performance out of what's called the Oracle SuperCluster.

The SPARC SuperCluster has had significant growth.

We've had very good growth in a product we don't talk about much, called the Oracle Database Appliance.

It's had significant growth for us.

This whole strategy of aligning hardware and software together is what customers want.

I can make an argument to you.

It's the same market trend you see in the cloud.

We just do more work for the customer.

We integrate the products for the customer.

The customer doesn't have to do it.

We optimize the software for the solution and it's delivered us strong growth.

So when you look across, really every line for us, we had very good performance.

By the way, I should add in storage.

Storage, our network attached product, again off now what's a bigger base, had very strong growth in the quarter as well.

So we're quite pleased with the performance we've seen in most of our product categories across most of our geographies.

Particularly in terms of share gains.

Great.

Thanks, guys, and congratulations again.

Thank you.

Karl Keirstead, Deutsche Bank.

Thank you for fitting me in.

I've got a question about two growth metrics that stood out to me that exceeded my expectations, and I'd love some color.

The first, and maybe this is directed to Mark.

Mark, it felt like North American database in the prior few quarters ran a little bit less than expectations.

And yet Safra mentioned that her comments, that North American database sales were back to double-digits.

I'd love to understand what drove that.

It doesn't feel like there's a big broader demand improvement, so I'd love to know how you pulled that off.

It's impressive.

And then for Safra, you put up 9% software support revenue growth in constant currency.

That's actually the best number you've put up in a little while, and I'd love a little color on that.

Thank you.

Well, I think on the database question in North America, Larry answered that a bit earlier talking about 12c.

We're into a new release.

We've talked about the timeframes it would come on board.

You saw good performance in North America.

Frankly, when you looked at database overall in CD, we grew 5, 6 points.

I want to say 6 in CD.

Again, my guess would be we're gaining share again as you look at database overall.

I know you mentioned the metric you described about database, but as I tried to go through at financial analyst meeting, when you look at the CAGR on a three-year basis, it is a very strong upper single-digit CAGR in database.

While you talk about one quarter or another, this is not a new phenomenon that you see, this kind of performance in database.

And now with 12c, our pipeline has grown in database, and I think it's reflected in the numbers that you saw in the quarter.

Thanks, and Safra, yes.

Yes, sure.

I'm actually looking at all of the numbers and the contract base and it's been going up.

It jumps around, but I have other quarters where it's very close.

Remember, we're selling an extremely large amount.

Cancellation rates are very low.

Very low.

Attach rates are extremely high.

And all of that added together just ends up with a good number.

Right.

Okay.

Thanks a lot.

Thank you.

Thank you.

I'd now like to turn the call back over to Mr. Bond for his closing remarks.

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