Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message| ()  

Executives

Roy Lobo – Investor Relations

Jeff Epstein – Chief Financial Officer

Safra A. Catz – Co-President

Lawrence J. Ellison – Chief Executive Officer

Charles E. Phillips, Jr. – Co-President

Analysts

Heather Bellini - UBS

Adam Holt - Morgan Stanley

Sarah Friar - Goldman Sachs

Brent Thill - Citigroup

Kash Rangan - BAS-ML

John DiFucci – JP Morgan

Peter Goldmacher - Cowen & Company

Oracle Corporation (ORCL) F3Q09 Earnings Call March 18, 2009 5:00 PM ET

Operator

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 Mr. Roy Lobo, Head of Investor Relations at Oracle.

Roy Lobo

Good afternoon everyone and welcome to Oracle's third quarter fiscal year 2009 earnings conference call. With me on the call are Oracle’s Chief Executive Officer, Larry Ellison; Oracle’s President, Safra Catz; Oracle's President, Charles Phillips; and Oracle’s Executive Vice President and Chief Financial Officer, Jeff Epstein. We will begin with a few prepared remarks and then take questions from the audience.

Let me begin by reminding everyone that today's discussions may include predictions, expectations, intentions, estimates, or other information that might be considered forward-looking. While these forward-looking statements represent our current judgment on what the future holds, they are subject to risks and uncertainties that may cause actual results to differ materially. You are cautioned not to place undue reliance on these forward-looking statements which reflect our opinion only as of the date of this presentation. Please keep in mind that we are not obligating ourselves to revise or publicly release the results of any revision of these forward-looking statements in light of new information or future events. Throughout today's discussion we will attempt to present some important factors relating to our business that may affect our predictions. You should also review our most recent Form 10-K and Form 10-Q for a complete discussion of these factors and other risks that may affect our future results or the market price of our stock.

A .pdf copy of our press release and financial tables, which include a GAAP to non-GAAP reconciliation, can be viewed and downloaded on the Oracle Investor Relations website at www.oracle.com/investor.

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

Jeff Epstein

Good afternoon everyone and thank you for joining us. I will review our non-GAAP financial results, focusing on constant currency growth rates unless otherwise stated.

First, a note about foreign exchange rate movements. In December we told you that using then-current exchange rates would reduce our Q3 growth rate by 8% compared to constant currency. During the third quarter the U.S. dollar strengthened again, further reducing our international revenues, expenses, and profits when measured in U.S. dollars.

As a result, currency movements reduced new licenses revenues by 9%, total revenues by 10%, net income by 12%, and earnings per share by 13%, or $0.05 per share, compared to Q3 of last year.

Now, let’s review the income statement. In the third quarter our new software license revenues were $1.5 billion, up 3% in constant currency and down 6% in U.S. dollars. EMEA grew 12%, Asia grew 1%, and the Americas were down 4%.

Technology new license revenues were $1.1 billion, up 6% in constant currency and down 4% in U.S. dollars. EMEA grew 15%, Asia grew 1%, and the Americas were down 1%.

Our BEA products, which have now been technically integrated with Oracle's Fusion Middleware, packaged in unified suites, and are sold off the same price list, accounted for $140.0 million of our Q3 new license revenues, based on our internal allocations which are consistent with previous quarters.

Applications new license revenues were $396.0 million, down 4% in constant currency and down 12% in U.S. dollars. EMEA grew 2%, Asia fell 2%, and the Americas were down 8%.

Our software license updates and product support revenues were $3.0 billion, up 21% in constant currency and up 12% in U.S. dollars. These revenues are annual fees that customers pay to receive updated versions of, and enhancements to, their existing products without having to buy the software again.

On a trailing four-quarter basis our software license updates and product support revenues totaled $11.8 billion, up 18% over the prior comparable period.

Our services revenues were $1.0 billion, up 2% in constant currency and down 8% in U.S. dollars.

Our total revenues were $5.5 billion, up 12% in constant currency, which is above the high end of our constant currency guidance range of 8% to 11% and up 2% in U.S. dollars.

Operating income was $2.6 billion, up 26% in constant currency and up 15% in U.S. dollars.

Our non-GAAP operating margin grew by 510 basis points to 46.4% in U.S. dollars. This is the highest Q3 operating margin in Oracle’s history as a public company and further demonstrates the success of our operating model.

Our tax rate was 26.6%, which is lower than our guidance of 28.5% due largely to a one-time benefit for a recent state tax law change.

In Q3 we repurchased 86.0 million shares at an average price of $16.82 per share for a total of $1.4 billion. As we have previously stated, the rates of our stock buyback will fluctuate each quarter taking into account alternative uses for our cash and our stock price.

Our non-GAAP earnings per share were $0.35, above the high end of our EPS guidance range of $0.31 to $0.33. This was up 29% in constant currency and up 16% in U.S. dollars. Our non-GAAP earnings per share would have been $0.05 higher had foreign exchange rates remained the same as they were in Q3 of last year.

Turning to the balance sheet, we have $11.3 billion in cash and investments.

Our days sales outstanding improved again this quarter from 54 days last year to 49 days this year, a testament to the quality of our receivables, the quality of our customers, and the effectiveness of our collection efforts, as well as from foreign exchange and product mix benefits.

We generated a record $8.0 billion in free cash flow over the last four quarters, growing 14% over the same period last year.

Now, I will turn the call over to Safra.

Safra A. Catz

Clearly we are extremely pleased with our spectacular Q3 results. We hit the midpoint of our new license guidance, we beat the high end of our total revenue guidance, we beat the high end of our EPS guidance by a full $0.02, and we delivered the highest Q3 operating margins in our history, substantially higher operating margins than our peers. And we grew faster than SAP in every region around the world, clearly taking market share.

Our software license updates and product support revenues, which hit $3.0 billion this quarter, are growing nicely off a very large base, and our customer renewal rates and satisfaction levels continue at record highs.

This quarter clearly demonstrates the strength of our diversified portfolio products, the breadth of our enormous customer base, and the strength of our operating model.

Once again, the only negative story for the quarter was currency, as it was in Q2 and as it will be again in Q4.

To give you a flavor for the regions since Q4 of last year, currencies in major European countries have depreciated about 20%, currencies in Latin America have depreciated 30%, and currencies in Asia, except for Japan, have depreciated about 30%.

For the coming quarter, assuming that exchange rates remain at current rates, it will be a 12% negative currency effect on license growth rates, a 12% negative effect on total revenue growth rates, a negative 15% effect on net income growth rates, and a negative $0.07 per share effect on earnings per share.

So now let me turn to guidance. We believe the guidance we are giving today is realistic given the continuing strengthening of the U.S. dollar and a very tough Q4 comparison from last year, but I do want to emphasize that our pipelines continue to be strong and the close rates that I am assuming are more conservative than typical Q4 close rates, which may end up being appropriate.

With that, our guidance for Q4 is as follows:

New software license revenues are expected to range from negative 5% to negative 15% in constant currency. So adding the negative 12% from currency, that’s a negative 17% to negative 27% at current exchange rates.

Total revenue on GAAP and non-GAAP basis is expected to range from plus 2 to minus 3 year-over-year in constant currency and minus 10 to minus 14 at current exchange rates.

Non-GAAP EPS is expected to be $0.49 to $0.53 in constant currency, up from $0.47 last year and from $0.42 to $0.46 assuming the current exchange rate.

GAAP EPS for the fourth quarter is expected to be $0.41 to $0.45 at constant currency and $0.34 to $0.38 assuming current exchange rates.

Now, our guidance assumes a tax rate of 28% for Q4 versus 30.8% in Q4 of last year.

Now I want to be clear, the midpoint of our Q4 EPS guidance puts us at $0.44 or $0.42 for the year but you need to remember the impact of currency, not only for the quarter but for the whole year. Currency impacted earnings negatively by $0.01 in Q1, $0.04 in Q2, $0.05 in Q3, and as I said, my guidance assumes $0.07 in Q4 if the dollar stays at these rates. So forgetting the economy, if you merely adjust for the strengthening of the dollar, and use the midpoint of my Q4 guidance, we would be over $0.57 for the year.

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

And though we cannot control the stock market, one benefit we can give our stockholders is a cash dividend so today we are announcing Oracle's first-ever quarterly dividend of $0.05 per share.

We generated $8.0 billion in free cash flow over the last 12 months and we are running the business at record margins. We are extremely confident in our financial strength, our operating model, our competitive position, and our execution capabilities, and as a result, when many others are reducing or eliminating dividends, we are putting one in place.

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

Lawrence J. Ellison

I am just going to re-emphasize a few things that have already been said. First of all, but for currency—but for currency, we actually sold more new licenses in Q3 of this year than in Q3 of last year. And that is in the face of a worldwide global recession. Great reductions in capital spending, what has been described as tough times for the tech industry. In terms of new license sales, our new license sales actually grew year-over-year when measured in constant dollars. That is a remarkable achievement and we’re very proud of the quality of our products and the quality of our field to deliver such a result.

But for currency, our earnings per share would have been 29% growth, year-over-year. That is in the face of a worldwide recession, weak global economy. We are still able to grow our earnings ahead of our plan, which did not anticipate a global recession or a weak economy. Our target growth rates are 20% per year and we delivered 29% in constant dollars.

By the way, even when you do count currency, the twin hegmans of a weak global economy and a strengthening dollar, we still managed to grow earnings per share 16%. That is a remarkable achievement and we are very, very proud of that.

So, that’s looking back. Now looking forward, I think the most exciting product we’ve had in many, many years is our Exadata Database Server. We planned to grow using a combination of innovation and acquisitions and our fastest growing business right now—our fastest growing large business right now—is our Fusion Middleware business and that really is a combination of innovation, and acquisitions. The BE acquisition being the largest and the most visible in terms of growing our Fusion Middleware business.

Exadata is 100% innovation on top of our very large and very strong database business. And the early results have been remarkable. Charles Phillips will go into a lot of detail but I’ll just throw a couple of numbers out there.

One of our customers, and Charles will describe this customer, one of our customers saw a 28x performance improvement over an existing Oracle database. Another customer saw a monthly aggregation drop from 4.5 hours just to 3 minutes.

When compared to Teradata, a competitive database machine that’s been in the market for a very, very long time, another customer saw that we were 6x faster than their existing Teradata application, when using Exadata versus Teradata.

Another customer saw a batch process fall from 8 hours to 30 minutes. Charles will go into more detail on all this, he will repeat those numbers, because I think they’re worth mentioning twice.

Charles E. Phillips, Jr.

I wanted to start off with a few comments about how the field performed. I think the field was very proactive and did a good job adjusting to the current environment, so just some of the things we’ve been doing.

I think we anticipated extra layers of approvals given the tight controls on spending and we negotiated that quite well. We have refreshed the filling messages around cost reduction and consolidation and the elimination of costly customizations.

We are more focused on add applications and add-on options to add value to existing deployments. This includes things like Agile, Demantra, G-Log, sourcing applications, EPM, which is our peer unit, and BI on the tool side of it. And the good news about all of that is that we can sell that into the EsNT install base as well so we can add value to an existing deployment.

We are getting people to upgrade to the latest releases of our applications. That sets the stage for us to upsell to recent add-on modules and we have been selling into existing demand, not ahead of it, so customers don’t have excessive license headroom at the moment.

On the consulting side we have adjusted consulting hiring on projects to keep utilization and margins high by load-balancing with contractors and the integrators instead of hiring for future products ahead of the deal.

So now just a few comments by area. On databases, Larry mentioned, we’re very excited about how the HP Oracle database machine is performing. The increases have just been stunning and so we are getting great feedback from our customers and the pipeline is the largest build I’ve ever seen in terms of a new product.

And as he mentioned, the numbers are just stunning. The major European retailer who reduced the batch processing time from 8 hours to 30 minutes did not believe the process had completed. We had to convince him that’s actually how it’s done.

And so, as Larry mentioned, this is the reminder that this is an internally developed technology in the midst of all the discussion of acquisitions. People forget that we’re actually spending $3.0 billion a year on research and development and this is why we do it.

A few enterprise database deals to highlight. Bank of America, even despite what is going on in financial services, did a very large deal with us to purchase many components across the text dat, and because they wanted to lower their costs and consolidate around our database and our Middleware stack and so it was a good deal for us. Campus-wide license for RAC and database at New York University. Two notable ones.

More important, upcoming. New release of the database 11g release 2 should happen in Q1. The key feature enhancement there is an enhancement to rule application clusters a RAC. So just to remind you, RAC is our most popular database option that we sell around database and it is the underlying technology for grid computing.

We have been focused on advanced users because of the complexity of clustering technology, at least historically. The change initially is to have significant ease of use enhancements and this will make grid computing accessible to a much broader market. So basically, this is grid computing for the masses.

Moving on to Middleware. Middleware continues to do extremely well. We still have all the momentum you have become accustomed to and I think one of the changes recently is just how much the system integrators are now helping us. We now have trained over 33,000 consultants in 50 countries and it’s a great way to expand our selling capacity without increasing our costs.

So some recent partner deployments of our Middleware are JP Morgan Chase, CSC at Wells Fargo, Deloitte at the University of North Carolina, IBM Global Services at Navistar.

We also have a major new release of our entire Middleware suite this quarter, using Middleware 11g and this is the major integration we’ve been talking about, the integration of all the BEA products, common metadata, upgrading components. We expect that to make us a lot more competitive.

Some recent wins on the platform. Smucker’s, Weight Watchers. At the application server level San Diego County, Verizon, Enterprise Performance Management, the Gap, Home Depot, Adobe Laboratories, Federal Reserve Board, CVS Pharmacy. And our BI products, NexSmart, Stella, Florida AAM, and the federal custom service. Good wins in content management at the University of Arkansas, and identity and access management at Standard Life and Liberty University. Lots of more we could mention, just wanted to give you a sample.

Lastly, on applications we had a new release of Application Integration Architecture Version 2.3 in January. Just to remind you, these are packaged integrations between the Oracle applications that are built completely on standard Middleware. So standard off-the-shelf integration has turned into a good differentiator for us since customers want to avoid costly hard-wired and custom integrations that always break on upgrades. So we use this integration platform for our own products but we also extend them as third-party products where it makes sense.

A couple of examples. Lexis/Nexis purchased AIA Pro Communications and Media and they used that to surround their high-volume online billing engine and integrate end legacy applications as well. Foster’s Group purchased Oracle Teaching Middleware in AIA foundation pack to integrate JD Edwards and Siebold along with some third-party applications. On and on. People like the fact that we are taking responsibility for the integrations.

A couple of notable wins across the applications portfolio. ERP, Hitachi Global, Federal Express, Experian, PNC, Affiliated Computer Services, Cell Com Italia, Demantra, Sara Lee, and Leggett and Platt. Oracle transportation management, Ingersoll Rand and Sears. In retail Belk, financial services GPU, Federal Home Loan Bank of Pittsburgh, HDFC Bank in India. And in communications GPU add-on deal to KTN, which is one the largest wall-to-wall deployments. Insurance, GPU, Great American Insurance Company. Utilities, Seattle City Lights and Northeast Utilities.

Finally, on CRM on demand, our ongoing battle with SalesForce.com continues. We beat them at Minute Staff leading contractors, Scottish [Widows] which is part of Lloyd’s TSP group, Cummings Engine. And we replaced them, 1,000 seats they had in place, at Carlson Wagonlit.

And with that I will turn the call back over to whomever.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Heather Bellini – UBS.

Heather Bellini - UBS

I guess two questions for you, Safra. The first one would be I was wondering if you could give us an idea of how you saw the quarter progress, if you saw more hesitancy to sign deals in the month of February versus January or do you think we’ve seen some signs of stabilization in terms of deal signings. And I guess what I’m trying to take from that is Adobe made some comments last night on their call that the last five or six weeks they’ve seen more stability in their channel business so I was wondering if you could give us some color there.

And then the second thing is it looks like you’re getting awfully close to that 50% operating margin goal that you set probably five or six years ago. And I’m just wondering, too, if you can give us a sense of what’s the limit there? Is this something we can continue to see and that once you get to 50% there is going to be another goal on the horizon that you’re just going to see this continue to progress as you layer on the maintenance revenue?

Safra A. Catz

As far as how the quarter played out for us, we were actually on track the whole quarter. Every month looked on track and there was no more of an issue earlier on. So, as you know, we do a lot of our business at the end and nothing about that was different. But we did end up with a good close but we were actually on track every single quarter.

Our business might be a little bit lumpier, more hockey sticks than Adobe’s, so it might be something they might see and we wouldn’t.

As far as the 50% rate, you know that that is very much dominated by the mix of business, dependent on our large install base of customers who already have bought our product and are interested in buying the upgrade rights every year and as that base continues to grow as a percentage of our total revenues you will see the margins continue to improve.

Heather Bellini - UBS

So is better than 50% in the cards at some point?

Safra A. Catz

You know, you just need a spread sheet, enough years in it. I think we’re definitely, we’re up obviously 500 basis points this quarter, 300 etc. in the previous quarter. So, we are on track to do over 50% ultimately, sure.

Operator

Your next question comes from Adam Holt - Morgan Stanley.

Adam Holt - Morgan Stanley

My first question is on maintenance revenue. It looks like you had a nice sequential increase in maintenance revenue. There has obviously been a lot of focus on this line. Our work suggests that your pricing has been holding in pretty well in what is obviously a difficult environment.

Can you talk a little about what you saw on the pricing front, renewal front, and some of the mechanics around maintenance revenue?

And then secondly, I also had a question on the opex side. You are obviously doing a terrific job on margins. Your headcount is sort of slowing on a sequential basis to growing year-over-year. What are your plans for headcount growth going forward?

Safra A. Catz

There was nothing special about the upgrade in product support business. It continues to grow because our—you know, every one of these new-license customers, it’s very overwhelming. The high percentage will renew next year and so this year the maintenance will be products updates and support number is simply from previous years, so same customers continuing to renew. There was nothing unusual in the pricing one way or the other. So there is really no news whatsoever on that line.

As far as headcount, the headcount numbers are often very dependent on what we do with acquisition. We are always very careful with how many folks we hire. The big ramp-ups in headcount have generally come in with acquisitions so we really can’t comment as far as what will happen in the future. It’s very dependent on what we’ll—as far as a big move on acquisitions, we haven’t had a very large acquisition in the past couple of quarters so there’s not the big bump.

Operator

Your next question comes from Sarah Friar - Goldman Sachs.

Sarah Friar - Goldman Sachs

Just a question on the growth in EMEA and even in Asia/Pac, which is just very noticeable given the backdrop that we’re in. As you think about the different geos and how they performed through the quarter and as you look forward, is the U.S. just a precursor of what’s going to come in these geos or is there something specific for Oracle in those geos, either that you have more share gains to take or there’s more low-hanging fruit in maybe some of the brick economies that would continue to make them look a little bit better than what you’re seeing in the U.S.

Charles E. Phillips, Jr.

Well, the economic impact was clearly more severe in the U.S., but having said that, there are some things going on in some of the other countries that maybe made a difference. We have a management change in Asia/Pac and that’s working out quite well. Japan is another story, but ex-Japan it’s actually working out very well in all the things that we are asking them to do. And the new energy he’s brought, that’s actually happening.

In EMEA we have the same thing. We have a management change that was planned and natural but I do think some of the changes he made there are having some immediate impact as well.

So I think we have adjusted for all that in our forecast. And the economies, as we see them unfolding, and hopefully as things go out through the quarter some of the deals that we’ve been counting on will close early in the quarter. There are other large ones out there. We’ll have to see what happens.

Sarah Friar - Goldman Sachs

Just a quick follow-up, kind of similar what the leading indicator is saying. I look at your database and Middleware growth in the U.S., constant currency, that actually dips down negative 1 and kind of trailing off from how strong it’s been. I would think that database is still an area that could continue to see growth. How do you think about the ability to keep growing that business, even given everything that we’re seeing out there in the economy?

Charles E. Phillips, Jr.

Well, the Middleware business, I think we are gaining significant share. We just have such a lead on the competition and we have a new release coming out. So I do think that’s a growth area and that’s been helping us get through a tough time period. And all the new BEA customers we can up-sell. So that’s working quite well and I expect that to continue.

Database is a more mature market, there’s no getting around that. Nonetheless, our differentiation limited to the competition is so great, if there is demand we tend to get it.

So I would say infrastructure is easier in a tough environment and new project driven areas like applications are somewhat tougher and that’s reflected in the results.

Operator

Your next question comes from Brent Thill – Citigroup.

Brent Thill - Citigroup

Safra, you mentioned you are assuming slightly more conservative close rates for Q4. Can you just give us a sense of that conservativeness? In your guidance and any key metrics would be helpful.

Safra A. Catz

In general we tried to use—first of all, Q4 has a dynamic all its own, frankly. And closure rates are always very high in Q4. So what I tried to use is a closure rate more similar to Q3 or Q2 just because we can’t see into the future. We had another spectacular quarter but we have no idea what’s going to be happening in the future. So in trying to use our best judgment, both using a bottoms-up and a top-down analysis to kind of see if the numbers make sense, we came out this time with a more conservative closure rate, really just probably in an abundance of caution, as to what’s going to happen next in the economy.

But there is nothing special. I often end up using a lower closure rate but we just don’t know. And the actual usually come out higher than that.

Brent Thill - Citigroup

And Charles, on the database, the options seems to be a popular choice. Can you give us a sense of what you’ve been seeing in this environment with the add-on of some of these database options, how important that’s been to continue to feel that line item?

Charles E. Phillips, Jr.

It certainly is a significant part of the growth around database, the options are leading it and I think our challenge is to make sure that we focus on a better, have more specialization around some of the options, have a higher attach rate when we do a database deal; make sure we offer the options at the same time.

So internally the opportunity around the options, given where we are, has gotten a lot more focused and that’s what happening. And we’re honestly starting to forecast at that level, not just overall database but internally forecasting the individual—at least the major options, in the major regions.

Operator

Your next question comes from Kash Rangan - BAS-ML.

Kash Rangan - BAS-ML

Larry, it looks like you’ve declared this earnings growth goal. You had one five years back and you’ve actually outperformed it pretty significantly. I’m wondering how do you think about the next 12 months ahead? Are you still targeting earnings growth rate—I know it’s a challenging currency environment—if you strip out the currency the results look really impressive, but the currency also continues to be a headwind, as you quantified, Safra, over the last few quarters. So how do you think about a reported basis, what the earnings growth for the company, how are you managing that for the downturn?

Lawrence J. Ellison

Again, it’s very difficult for us to predict currency rates. I mean, no one would have predicted a Euro of 1.68 or the sudden decline of Euros. We’re not really in the business of predicting exchange rates. We will leave that to George Soris and other people who do that for a living.

We try to manage our business using constant dollars and try to sell more software this year than the previous year, on a constant dollar basis. And on that constant dollar basis I think we can continue growing our earnings at our targeted 20% share. As you know, we almost hit it in the face of huge currency headwinds. We did 16% in reported but 29% EPS growth in constant. And I think that’s a terrific achievement in the face of this recession.

I think we are managing our way through this recession very, very well but currency is just too unpredictable. It fluctuates suddenly and it is not something we really try to manage for. Currency hedging and things like that, we’re not going to do that, we’re going to try to run our business within the recession, with our good growth, within the recession, make appropriate acquisitions, invest in appropriate innovation, and target a constant dollar EPS growth rate of 20%. And currencies are going to do what currencies are going to do.

Kash Rangan - BAS-ML

And Safra, is there any commentary at all on E&A trends, renewals, anything that you have been noticing? I don’t you don’t quantify it but any trend-wise qualitatively can you talk to that?

Charles E. Phillips, Jr.

There’s still a lot of E&A being done, that’s still healthy for our business. I would say on average, globally, maybe the deal sizes are a little bit less than they were in past years but that’s probably a good thing in this environment, as far as predictability. There’s still some large deals out there but they’re not in the forecast so the average deal size that we see would have to come down a little bit. But there’s plenty of individual opportunities out there.

Operator

Your next question comes from John DiFucci – JP Morgan.

John DiFucci – JP Morgan

A lot of people look at Oracle as a gauge for the software industry and whether you are or not is debatable. I have my own opinions there, but I was just wondering what you’re seeing versus your competitors. We all know the macro environment is tough out there; it is for you, too. But for instance, I think your apps results were better than anyone would have guessed here and your largest competitor was probably down 15% in their most recent quarter, on an organic constant currency basis, where you put up numbers on an organic constant currency basis it looks like it’s down about 4. Can you comment on that?

Charles E. Phillips, Jr.

I think SAP is a lot more reliant on big megadeals than we are. Their install base. And the thing that we used to get criticized for, having lots of applications, is actually a pretty good thing right now. We have lots of ways to sell into not only our own install base but around their customers as well. And so we have just more ways to get to the number. All the edge applications, all the on demand applications. And we know their customers since they’re running on our infrastructure and they don’t know ours.

John DiFucci – JP Morgan

Even when you look at, your apps business as far as its growth rate, has improved in each of the last three quarters. Charles, you even said even in this environment. Well, I guess your database is doing better than apps as far as a growth rate but it’s just sort of surprising to see that continued growth, or improvement quarter-over-quarter.

Charles E. Phillips, Jr.

Also keep in mind they don’t have any industry applications. We have vertical applications that are much less penetrated than ARP and with less competition, so that’s part of the growth, and they don’t have anything there that I know of.

Lawrence J. Ellison

They don’t have significant CRM business, they don’t have the CRM on demand business. We have a much broader portfolio of applications.

And let me add, next year we are going to be delivering the next generation Fusion applications, which we have been investing very heavily in over the years and SAP is not doing that either. So I think we are going to be able to continue to take market share from them for years to come because of the breadth of our portfolio, the investment in new applications, currently with things like CRM on demand, and our Fusion applications which are all on demand ready, or cloud computing ready if you prefer. And SAP is not making those investments.

John DiFucci – JP Morgan

One quick follow-up. Charles, you mentioned Q1 you were actually going to come out with a new version, ease of use. You did talk a little bit about options, but specifically on RAC, because that one is one that, as you know, has been a great one for you over the last several years. Can you talk a little about the penetration today, about the opportunity there, what’s left, even subjectively without specific numbers, if you can.

Charles E. Phillips, Jr.

A small percentage of our install base. It’s high-value product and it’s significant revenue but it’s a small percentage of the individual customers that are out there. And it makes a ton of sense for our medium and small customers, as well, if it can be made easy to use, and that’s exactly what we’ve done.

Operator

Your last question comes from Peter Goldmacher - Cowen & Company.

Peter Goldmacher - Cowen & Company

Safra, I wanted to ask you a quick question about headcount. I noticed that your headcount is relatively flat for the quarter yet all your operating expense line items were down absolutely. How does that happen? What’s going on there? Where are you getting the costs from?

Safra A. Catz

It’s currency. You know that, it’s got to be. We pay those folks, they’re all over the planet, and we end up paying them less. I mean, we pay them the same, they still get their same paychecks but they get it in reals, or in rupees, or in whatever, and so that’s all that’s going on. Nothing special.

Peter Goldmacher - Cowen & Company

And following up on the question on competition, are you seeing anyone that’s competing remarkably differently?

Safra A. Catz

I will tell you, any one of us could tell you, we feel like we are winning an awful lot. We are winning in other people’s install bases, we are winning what maybe in many cases we shouldn’t be winning. We are competing very effectively against our competitors. I don’t know, Larry, do you see anything different?

Lawrence J. Ellison

I think again, Charles pointed out the magic number. We invest $3.0 billion a year in R&D so we think we have a better database machine than Teradata. We are competing very successfully against SalesForce.com. We are doing better in applications in every region and taking share against SAP. In database, we’re doing extremely well against both Microsoft—taking share from Microsoft and IBM. So I think we’re competing more effectively across the board in all of our product areas and that’s the explanation for Q3 and reason for optimism going forward.

Roy Lobo

Thank you everyone for participating in today’s call. A telephone replay will be available for 24 hours. The replay number is 719-457-0820 with the pass code 3475782. You can access the webcast replay on Oracle’s Investor Relations website. The webcast replay will be available through the close of market on March 25, 2009.

Operator

This concludes today’s conference call.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Oracle Corporation F3Q09 (Qtr End 02/28/09) Earnings Call Transcript
This Transcript
All Transcripts