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Executives

Ken Bond -

Safra A. Catz - President, Chief Financial Officer and Director

Michael J. Boskin - Director, Vice Chairman of Finance & Audit Committee and Member of Nomination & Governance Committee

Mark V. Hurd - President and Director

Lawrence J. Ellison - Co-Founder, Chief Executive Officer and Director

Analysts

Richard G. Sherlund - Nomura Securities Co. Ltd., Research Division

Brent Thill - UBS Investment Bank, Research Division

Adam H. Holt - Morgan Stanley, Research Division

Kash G. Rangan - BofA Merrill Lynch, Research Division

Heather Bellini - Goldman Sachs Group Inc., Research Division

John S. DiFucci - JP Morgan Chase & Co, Research Division

Philip Winslow - Crédit Suisse AG, Research Division

Oracle (ORCL) Q2 2012 Earnings Call December 20, 2011 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 Ken Bond, Vice President of Investor Relations, Oracle. Please go ahead, sir.

Ken Bond

Thank you, Amber. Good afternoon, everyone, and welcome to Oracle's Second Quarter Fiscal Year 2012 Earnings Conference Call. A copy of the press release and financial tables, which include 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 these forward-looking statements.

While these forward-looking statements represent our current judgment, these statements are also subject to risks and uncertainties that may cause actual results to differ materially from statements 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 risks that may affect our future results or the market price of our stock. And finally, we are not obligating ourselves to revise our results or publicly release any revisions to these forward-looking statements in light of new information or future events.

Before taking questions from the audience, we will begin with a few prepared remarks. And with that, I'd like to turn the call over to Safra.

Safra A. Catz

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.

This quarter, new software license revenue was $2 billion, up 3% in constant currency or 2% in U.S. dollars, building off a 21% increase from last year. This was the result of a few things. First, in the last few weeks, really in the last few days of our November quarter, for the first time in a while in some regions, we saw an increase in last-minute additional approvals required for previously-scheduled and expected deals. As a result, we are putting in place better deal management so that we have the time and the approvals necessary to take this into account.

Additionally, there was a 2% negative swing as the currency -- as the 1% currency tailwind, included in our September guidance, shifted to a 1% headwind for new software license. Technology new license revenues were $1.5 billion, up 4% in constant currency and U.S. dollars, and applications were $569 million, off 1% in constant currency and 2% in U.S. dollars.

Within application revenue, ERP and CRM grew very well. Geographically, results were mixed as Latin America and Asia Pacific, excluding Japan, did well in constant currency in most products, consistent with the growth in their economies, while the U.S., Europe and Japan were up a bit, flat or down.

As I mentioned earlier, currencies moved a lot in different regions. In license, we saw total new license growth rate of 1% in constant currency or flat in U.S. dollars in the America and up 3% in constant currency or 2% in U.S. dollars in EMEA, while we saw 8% growth in JPAC in constant currency or 11% in U.S. dollars. The quarter was not dependent on any large deals.

Software license and product support revenues were $4 billion, up 9%. Support attach rates and software renewal rates continue at usual high levels. Hardware systems revenue was $953 million for the quarter due in part to a product transition to T4 processor-based products, as some customers moved to qualify the new servers and significantly slowed buying the older systems. We saw good early demand for the new SPARC Supercluster but only released the product for general availability at the very end of the quarter, allowing us to ship only a couple.

In sharp contrast, Exadata and Exalogic growth saw significant acceleration this quarter, with triple-digit growth rates over last year's Q2. Hardware gross margins were 51% for the quarter on the lower volumes. Total revenue for the quarter was $8.8 billion, up 2% in constant currency and U.S. dollars.

As for expenses, it was not a perfect comparison as, in last year's number, we got the benefit of $120 million in G&A expense reduction as a result of SAP's expense reimbursement for settling a small part of our intellectual property theft lawsuit against them. Net of that, G&A was flat.

We're pleased with our non-GAAP operating income of $3.9 billion, up 3%, as we expanded operating margins to 45%. We believe there remains ample leverage in our business model, and we believe we could be back at pre-Sun operating margins shortly.

The non-GAAP tax rate for the quarter was 26.3%. EPS for the quarter grew 6% to $0.54 on a non-GAAP basis. Operating cash flow increased to a record $13.1 billion over the last 4 quarters, while free cash flow grew 45% to a record $12.6 billion. We now have over $31 billion in cash and marketable securities.

We remain committed to returning value to our shareholders through technical innovation, strategic acquisitions, stock repurchases and prudent use of debt and dividends. This quarter, we repurchased 33 million -- 33.1 million shares for a total of $1 billion. We have received an additional $5 billion in authorization for our stock buyback program, and the board again declared a dividend of $0.06 per share.

Now to guidance. As you remember, we had an absolutely stunning third quarter last year, with new license up 29% and non-GAAP EPS up 40% and GAAP EPS up 75%. Regardless, the fundamentals of the business remained strong, with pipelines growing significantly.

Now I do read the daily financial news, so I'm going to take that into account for this quarter's guidance. With currency bouncing around, I'm going to give you constant currency guidance, and as a convenience for you, I'll give what our U.S. dollar rates from the past few days. That currently amounts to about a negative 2% currency effect on license growth rates and on total revenue growth rates, but rates remained very volatile.

Our guidance for Q3 is as follows: new software license revenue growth is expected to range from 2% to plus 12%, so that's from positive 2% to positive 12% in constant currency and 0% to 10% in U.S. dollars. Hardware product revenue growth rate -- growth is expected to range from negative 4% to negative 14% in constant currency or negative 5% to negative 15% in U.S. dollars, and that does not include the hardware support revenue.

Total revenue growth on a non-GAAP basis is expected to range from 3% to 7% in constant currency and 1% to 5% in U.S. dollars. On a GAAP basis, we expect total revenue growth from 4% to 7% in constant currency and 2% to 5% in U.S. dollars.

Non-GAAP EPS is expected to be $0.56 to $0.59 in constant currency and $0.55 to $0.58 in U.S. dollars, up from $0.54 last year. GAAP EPS is expected to be $0.44 to $0.47 in constant currency and $0.43 to $0.46 in U.S. dollars, up from $0.41 last year. This guidance assumes a GAAP tax rate of 26% and a non-GAAP tax rate of 26.5%. Of course, it may end up being different.

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

Lawrence J. Ellison

Thank you, Safra. This past Q2, Oracle sold over 200 Exadata and Exalogic engineered systems. In Q3, we plan to sell over 300 Exadata and Exalogic engineered systems. In Q4, we plan to sell over 400 Exadata and Exalogic engineered systems. That would make our annualized Q4 engineered system sales approximately $1 billion. Then we plan to double that -- those sales again next fiscal year.

As our engineered systems business gets larger, it will drive revenue growth in our overall hardware business. In Q2, we won some competitive deals because our engineered systems deliver much higher performance than IBM's fastest pSeries computers. In Q2, we won other competitive deals because our engineered systems delivered much better cost performance than commodity Intel servers.

I'm going to start with Exalogic, the newer of our machines, and talk about a few deals we've won. The University of Melbourne, they bought 4 Exalogic systems running our Fusion Middleware, where we beat Cisco Intel servers running VMware because the Exalogic systems were a lot faster and a lot more cost-effective. But it was cost performance that won us that deal, not peak performance.

We won an Exalogic deal at the Food and Drug Administration, the FDA. They bought 5 large Exalogic systems, full racks, to add on to their existing Exadata systems. They are standardizing now for a series of applications, including identity management and a bunch of custom applications. They're standardizing on Exadata and Exalogic.

Amway bought 2 Exalogic systems, replacing IBM AIX on pSeries machines. The E-Business Suite, the Oracle E-Business Suite, ran 12x faster on the Exalogic machines than on the IBM pSeries. Their custom, that's Amway's, custom OLTP applications, which are our SOA Java applications, ran 10x faster than on IBM pSeries machines. I know IBM's running a lot of ads saying, "They run faster," ,that their machines run faster than ours, but I'd love to see their customer references because we haven't see one. We've seen a lot of ads, no customer references. We have lots and lots of customer references. Where we're replacing pSeries and running much faster than IBM. I'd like to see one from IBM.

Hyundai Motors -- Hyundai Kia Motor Company bought an Exalogic system. This was our first win in an account that has been a loyal IBM customer for more than 20 years.

Exadata. Exadata came out quite a bit before our Exalogic machines, and some customers are beginning to now -- to standardize on Exadata. A very large American smartphone manufacturer now has over 30 Exadata systems as they build their cloud. A large European bank has over 24 Exadata systems. ACNielsen moved their Wal-Mart data off their IBM computer and on to an Exadata machine where it ran clearly 10x faster, 10x faster. We won 4 SAP customers who moved their data on to Exadata to run their SAP ERP systems, and we're seeing huge performance gains as they move off conventional servers. At least one of those deals was competitive against SAP's HANA product.

As Safra mentioned, our SPARC Supercluster was delivered during the last week of the quarter, where Macy's bought 2 Superclusters, and the State of California bought one.

Mark, turn it over to you.

Mark V. Hurd

Yes. Listen, Larry, you've talked about Exadata. I thought I'd just put some numbers around it. First, it was just a very strong Exa quarter. Our bookings for Exadata were a record, that includes Q4 of last year. The pipeline is the biggest we have ever had. We had the largest number of wins from new customers in Q2.

Exalogic is ramping faster than Exadata. Sales more than doubled sequentially, and the first year sales for Exalogic are more than double the first year sales of Exadata. Moreover, we have 2 more Exas, Exalytics and the Oracle Big Data Appliance, in addition to the SPARC Superclusters that we just mentioned.

We are now winning with Fusion apps in the cloud. We won Brocade, LivingSocial and Rainbow Media in the quarter. 100 apps now available, cloud or on-premise, and we believe this to be a key differentiator.

As Larry mentioned, well, let me add that we have put 1,700 incremental sales resources into the field since the beginning of the fiscal year. We have shown strong expense discipline while adding these resources, while increasing our margins. Great new products and more sales resources drive more organic growth.

On hardware, our introduction of the T4 and SSC have driven material -- SSC for us is SPARC Supercluster, have driven material pipeline for the back half of the year. And Safra mentioned the T4 hurt a few orders for us in Q2, but the pipeline has grown materially. These are the most exciting SPARC products we have had in years.

ZFS storage doubled year-over-year. This is the fourth quarter of consecutive growth for ZFS in a row. And again, as we start lining up these pieces of differentiated IP, aligned with incremental sales resources, we will drive yet more growth.

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

Ken Bond

Thanks, Mark. Amber, we can begin the Q&A portion of the call now.

Question-and-Answer Session

Operator

[Operator Instructions] And we'll take our first question from John DiFucci with JPMorgan.

John S. DiFucci - JP Morgan Chase & Co, Research Division

Question has to do sort of with the general backdrop here. It looks like the Americas had a very difficult comp this quarter, and it doesn't get any easier next quarter. EMEA had a relatively easy comp this quarter, that actually gets more difficult next quarter, and Asia Pac's comp gets a little more difficult, too. So I guess Safra, with the guidance, how do you get comfortable -- how do we get comfortable with your guidance? You, obviously see a lot more than we do in the numbers and where it's going. But you've given guidance that at least from our calculations is a little better than normal seasonality from this quarter to next, realizing this quarter was a little bit below you had anticipated at the beginning of the quarter.

Safra A. Catz

Well, there are a few things. The first one is clearly, this quarter was not as we thought it would be, and we've been taking a look at the deals that really should have closed and that would have closed but for sort of irregular environment. And a number of them have closed or are on track to close this quarter, so we feel very good about it. We've expanded our distribution capacity enormously, and so we have a lot more feet on the street. And we're looking at really the business overall, and though I'm trying to bring in some level of conservatism because of the -- just what I read on the -- about the economy, we are really comfortable that we will get there. We should be there. There's no -- I mean, I suppose if there's a giant global financial meltdown, we shouldn't, but in looking at what was -- what happened this quarter, we don't actually expect that to repeat. And I think we'll have a much more normal next quarter. We have, as I said in the beginning, we've put in some measures so that we can monitor really what's going on and make sure we are on time with the appropriate approvals. Mark, do you want to add to that?

Mark V. Hurd

Solid pipeline, John, so it's quite strong. We're not forecasting a higher, if you will, conversion rate, if you think of it from a pipeline perspective. And to Safra's point, we have more resources. So I think the combination of that, aligned with our product portfolio. Our product portfolio is just -- John, I don't know how -- I think we've talked about it before. We just have some test lineup of products in the industry right now. So when you look across the apps portfolio, remember, we're going to market now in the apps portfolio. It's only been refreshed over the past 2 or 3 months. You go to the T4 SSC product line, those were just released at Oracle OpenWorld. Larry talked a lot about the Exadata, and I added on the Exalogic numbers from a momentum perspective. So you've got the lineup of product line, strong pipe and more resources, and we have confidence.

John S. DiFucci - JP Morgan Chase & Co, Research Division

Has -- Mark, has those new procedures that were put in place to sort of keep track and make sure these deals close, and Safra mentioned that some of these deals have closed. Have they sped that up and is that giving you -- also giving you some sort of a confidence?

Mark V. Hurd

Well, I'm not going to talk about what's going on in Q3. I mean, this is a Q2 call. But yes, I mean, obviously, we get to look at a lot of deals. And listen, this is the life we chose though in the context that there are always going to be big deals, and it's our job, obviously, to get about the job and getting them closed [ph], but we get a pretty good deal of them and we feel good about the momentum that we've got. And I really have to fall into those key categories, which are, how's your product lineup, how's your sales resource lined up and how's the pipe because we need pipe obviously going into the quarter. That's obviously our preliminary indicator, and those are the basic fundamentals behind the guidance, John.

Operator

And we'll go next to Heather Bellini with Goldman Sachs.

Heather Bellini - Goldman Sachs Group Inc., Research Division

I wanted to follow up, Safra and Mark. You guys mentioned that in your comments to John about how you've been hiring aggressively, and I think you mentioned you've hired about 1,700 people since the start of the fiscal year in your press release. Can you talk about, Safra, how you think about balancing kind of your EPS goals? And I'm not talking about November but just as you look going forward out over the next few quarters or next year. How do you think about balancing your EPS goals with the demand opportunity you see in front of you based on this -- based on the pipeline and the product lineup that you have?

Safra A. Catz

Well, with us, it's always -- we're always very EPS protection-driven. If markets are more difficult, we're always the ones who are somehow able to bring in the EPS as a general matter. So we've taken a little bit of a lesson from this quarter, and we'll continue to monitor. Remember, a lot of the -- a lot of this is our new product update and support -- product support and updates business. The overall business gets bigger, that is, of course, very profitable for us, and we think we can grow profitably. I want to point out that even in this quarter, our operating margins increased. Okay? Even in a quarter where we did not actually end up selling as many new licenses as we'd hoped, our operating margins increased, and we are really on track to get back to our pre-hardware company margins, which puts us, of course, at still the highest operating margins in the software industry, and we have a $4 billion hardware business in us. So I would -- I'd bet on us to keep those earnings growing and protected.

Mark V. Hurd

Heather, just a follow-up to your -- the 1,700 -- I want to make sure you clear, it's a net number.

Heather Bellini - Goldman Sachs Group Inc., Research Division

Right.

Michael J. Boskin

We didn't hire -- okay, so that is a net number minus attrition, 1,700 more people calling on customers. And to Safra's point, we've been very disciplined. Our margins went up while doing that. So to your point about protecting EPS, it is foremost in our mind to make more money, while we do this.

Operator

.

And we'll go next to Kash Rangan with Bank of America Merrill Lynch.

Kash G. Rangan - BofA Merrill Lynch, Research Division

Larry obviously sounds very bullish on engineered systems, and Mark, you sound bullish on distribution. Yet the only thing that we're all scratching our heads with is the applications license number. You obviously sound pretty confident that the business will rebound in the February quarter. Just wondering if you can give us a little bit more color. Is it financial services, public sectors or the verticals that are talked about within apps that is where you saw the pause? Or maybe you could take a vertical cut at it? I know you have a strong presence in the industry vertical solutions. Is that where you saw the pause? And consequently, what gives you the confidence that we might see a snapback in spending, if this hypothesis is correct that it was narrow -- that, that weakness in application license was narrowed to a few pockets? That's it for me.

Safra A. Catz

Yes. Well, where we saw a real strength is in CRM, where we were double-digit growth, close to 20%, and ERP did very well. However, where we had some weakness was in some of our vertical markets, which are longer sales cycle and which need to be managed very, very carefully. And so we think those are actually going to recover. I will tell you that generally, in public sector, we are actually doing reasonably well in U.S. public sector. And as they're very good customers for our engineered systems and things like that. So I think we actually expect a snapback more as we get into more regular management of those deals in the vertical markets, which are generally long sales cycle, larger deals, have to be managed well.

Operator

And we'll go next to Philip Winslow with Credit Suisse.

Philip Winslow - Crédit Suisse AG, Research Division

Just 2 quick questions. First for Safra and Mark, could you maybe talk about just the dynamics between the applications and the database and Middleware businesses in terms of license revenue and kind of how you're thinking about that when you put together your guidance for next quarter's acceleration and license revenue growth versus this quarter? Just kind of maybe compare and contrast the 2. And then to Larry, one of the things you'd mentioned was...

Lawrence J. Ellison

Phil, I'm going to jump in here. We need you to speak up.

Safra A. Catz

Yes. I'm sorry, Phil, we couldn't quite catch the question. Maybe you could talk to us -- talk closer to the phone.

Philip Winslow - Crédit Suisse AG, Research Division

All right. Wondering if you could just compare and contrast the database and Middleware and then the applications businesses just in terms of your guidance for next quarter and just the business trends that you're seeing there and how you kind of think about that going forward. And then a follow-up for Larry, just in terms of HANA versus Exadata. You've mentioned a win there directly versus SAP. I wonder if you could just give us your thoughts on that.

Safra A. Catz

Okay. In general, we expect both database and applications to be strong next quarter actually. The reality is that we've got extremely difficult comparisons, frankly in both and in database particularly. But we do expect really, obviously, a significantly better quarter in Q3 across the board. Larry?

Lawrence J. Ellison

There were a series of benchmarks, the customer, where they compared HANA, SAP's in-memory analytical database, and they compared the performance of that against just our Exadata database machine, and Exadata was faster, which I think surprised a lot of people because Exadata is not what we've lined up against HANA. That is not our product that we line up against HANA. We have a product called Exalytics, which is our in-memory analytic database. But it was interesting that our database machine, which is a combination of memory, flash and disk, outran HANA without Exalytics. With Exalytics, we're 10x, again, faster. So we're fairly confident that if Exadata can beat HANA, Exalytics will beat HANA by even more. So again, that came as a surprise to us.

Operator

And we'll go next to Adam Holt with Morgan Stanley.

Adam H. Holt - Morgan Stanley, Research Division

My question is about the hardware business. It sounds like you saw a little bit of a product transition this quarter in the hardware business. Is the assumption in the guide that, that continues for the third quarter? And are you still pretty confident that the hardware business can grow into the double digits even as potentially the macro environment gets a little bit software -- softer into next year?

Lawrence J. Ellison

Yes, we are going through a transition. The transition -- we went through a microprocessor transition where it all begins, as we introduced T4. And some people were looking at buying T3 delayed and qualified T4 and are buying T4. I think that hurt us a bit, and that definitely hurt us a bit in Q2. We think that's going to help us a bit in Q3 and help us even more in Q4. SPARC Superclusters. Again, we just were able to deliver right at the end of the quarter, but we think that's going to -- we're going to start selling that aggressively into the installed base, the Sun-installed base, and we've already have a very large pipeline for that. On top of that, but the big thing, the thing that really moves the needle are Exadata and Exalogic have been out there for a while. As I said, we sold 200 last -- in Q2. We'll sell 300 in Q3. We'll sell 400 in Q4. It's very easy to remember. Q2, 200; Q3, 300; 4 -- we didn't plan it that way but that's the way it's turning out. As I think about larger and larger percentage of the total, I mean, clearly, that's going to drive 2 things. It's going to drive top line and it's going to drive margin. And we think that's -- we think the hardware business could turn around and show growth as soon as Q4, and we'll definitely go. I think I'm very confident we'll show double-digit growth next year because we'll have all of these new products out and I'll let Mark...

Mark V. Hurd

I'll add in a couple things. I mean, I think one that the T4 migration from T3 was a big jump. You're talking about 2.5x the performance on the microprocessor, and you could not upgrade in box. So that's a big deal for the customers that when I buy something, I got some -- I've got a migration path, which we will have with T4 to T5. So big, we have a T5. The range of products now coming out give us a different position in the market. So now the fact that next year, when T5 comes out, you'll be able to upgrade from the T4 to T5, and that will sort of eliminate some of this pause that you just heard us describe because now if I bought a T3, I have to do a complete replacement to get to a T4. So these are just the things you have to do as you start to improve the IP and the product line. You've seen us improve ZFS. You've seen us with T4. You see that now manifesting itself in servers out there. You're going to see it show up in what we've done in TAPE earlier in the year. So we've refreshed the product line. This is all separate from Exa. We've put more feet on the street. We feel very good about our competitive position. So yes, that's where we are.

Operator

And we'll go next to Brent Thill with UBS.

Brent Thill - UBS Investment Bank, Research Division

Mark, just on the sales capacity adds, you've been quite aggressive. Did this Q2 give you pause to potentially slow that a little? Or are you still aggressively moving forward?

Mark V. Hurd

No, no. I think we would continue to be aggressive, except -- we're in a unique position. We're one of those companies -- I don't want to make this sound too corny, but we're one of those companies people want to join. Salespeople want to be part of companies that have great products, that have a great market position. So we've got to make sure, to your point, that we're hiring the right ones, and that's what we're doing. We're trying to be very particular that we're getting the right folks. And of course, to your point, we're trying to make them productive, put the kind of infrastructure in to assimilate and get them productive as quickly as we can. But we're going to be very, very aggressive in looking for good talent. But I want to make sure I add the point that was mentioned earlier, within the context of disciplined expense management but we feel like we need more distribution, and we're going to continue to try to get it.

Brent Thill - UBS Investment Bank, Research Division

And just a quick follow-up for Safra, just on the additional approvals that you needed. Was the common characteristic they just needed more time? Or are you starting to see some of the customers come in and talk about some of their budgets being a little more constrained and they're downsizing some of their projects?

Safra A. Catz

No, we haven't seen what you said the second half of what you've seen, which is downsizing. What we did see was folks where all of a sudden the CEO had to approve it or something like that, where before it was all set. So we haven't had them come back and tell us their budgets are down or anything. And as I said, in some cases, things close literally the next day or a few days later once the approval came in. But those things, when we do run them sometimes right to the end, you just run out of time. And we've seen this before, and I think that we can manage it now that we understand it and that we put it into the process again. It's -- I think we've got it handled.

Operator

And we'll take our final question from Rick Sherlund with Nomura.

Richard G. Sherlund - Nomura Securities Co. Ltd., Research Division

Larry, could you reconcile these numbers you gave for Exadata and Exalogic? I think it adds up to 1,000 or 1,100. Didn't you say 3,000 just recently? And I think the company originally guided to 2,000.

Lawrence J. Ellison

Yes, that's right.

Richard G. Sherlund - Nomura Securities Co. Ltd., Research Division

Well, could you elaborate? Is it turning out to be a harder sell? Are you trying to figure out how to sell it?

Lawrence J. Ellison

No. I think we're going to be -- we're growing Exadata at about -- look, the growth rate is around 150% Exadata and Exalogic even faster.

Mark V. Hurd

Rick, make sure you're clear. What Larry said earlier was tripling the growth and installed base -- tripling the installed base and driving that, and that's the same metric we're on. So you're hearing the same number within the context of a different way of describing it. So let me make sure you're clear, Rick. There is no more difficulty in selling Exadata. There is no issue with pipeline. It is quite the opposite. And we're also comparing what we booked versus what we shipped, so there are a couple of different numbers that are running around here. We are going after that same metric that Larry described before. You are seeing probably not anything more than us now manifesting that sales in quarterly numbers that are coming out. So it's very positive. I think the biggest news within it is no change in the Exadata trajectory. And I don't want to say this is a surprise, but the speed of the Exalogic ramp is probably the -- it may not be a surprise to Larry. If he's not, it had to be [ph]. But it is very, very positive. We are seeing a faster ramp of Exalogic than we did Exadata.

Richard G. Sherlund - Nomura Securities Co. Ltd., Research Division

Mark, I still don't understand. Are you talking about...

Mark V. Hurd

Rick, if your question is we set a goal of tripling the installed base, that was our goal, and we probably won't triple it. We'll probably increase it by 2.5x. If that was your question, "Are we going to triple?," And then you added up the numbers and said, "Looks like to me more like 2.5x than triple," that's right. We're only going to -- we're only going to grow it by 2.5x. We said we had a very aggressive set of targets, and we are taking huge amounts of share from IBM at their high end. We're taking share from Teradata, Netezza, everybody. This business, again, will be at a $1 billion run rate at the annualized, our Q4 numbers. And it will be $2 billion the following year. But will we have hit our units -- our units tripling? No, we'll probably fall a little short of that.

Lawrence J. Ellison

But we got a shot.

Mark V. Hurd

We get a lot of shot. I mean, yes, exactly. So because you're into the internal forecast [ph] , we're in that range. And so it's -- listen, this is what -- this is an exciting opportunity for us, and we're not out of doing that tripling yet. The color -- I mean, will the results for Exadata, Exalogic be stellar and extraordinary or merely spectacular? We might just be spectacular, and you caught us, Rick.

Ken Bond

Operator, we can wrap the call.

Operator

At this time, I would like to turn the conference back over to your speakers for any additional or closing remarks.

Ken Bond

Thank you, Amber. A telephonic replay of this conference call will be available for 24 hours. Dial-in information can be found in the press release issued earlier today. Please call the Investor Relations department for any follow-up questions from this call. And we look forward to speaking to you. Thank you, all, for joining us on today's conference call. And with that, I will ask the operator to close the call.

Operator

That does conclude today's conference. Thank you for your participation.

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