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Oracle Corporation (NYSE:ORCL)

F1Q09 Earnings Call

September 18, 2008 5:00 pm ET

Executives

Roy Lobo - Investor Relations

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

Lawrence J. Ellison - Chief Executive Officer, Director

Charles E. Phillips - Co-President, Director

Analysts

Sarah Friar - Goldman Sachs

Heather Bellini - UBS

Peter Goldmacher - Cowen & Company

Adam Holt - Morgan Stanley

Kirk Materne - Banc of America Securities

John DiFucci - J.P. Morgan

Brent Thill - Citigroup

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 Roy Lobo, Head of Investor Relations at Oracle. Please go ahead, sir.

Roy Lobo

Thank you, Operator. Good afternoon, everyone and welcome to Oracle's first quarter fiscal year 2009 earnings conference call. With me on the call are Chief Executive Officer Larry Ellison; Oracle's President, Charles Phillips, and Oracle's President and Chief Financial Officer, Safra Catz. Joining us in the room today is also Jeff Epstein, our Executive Vice President who will become our CFO [inaudible]. We will begin with a few prepared remarks and then take a few questions from the audience.

Let me begin by reminding everyone that today's discussions may include predictions, 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 could 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 revisions 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 always 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 Safra Catz for her opening comments.

Safra A. Catz

Thanks, Roy. Good afternoon, everyone and thanks for joining us. I'm going to first focus on our non-GAAP results for Q1. I’ll then review guidance for Q2 and then turn the call over to Larry and Charles.

Our non-GAAP EPS grew 32% to $0.29, setting us up well for another year of very strong EPS growth. This quarter’s 32% growth is compared to our non-GAAP earnings growth of 27% in Q1 of last year and it follows the 27% earnings growth we had in Q4.

We were also able to improve our operating profitability by 350 basis points this quarter to 40.1%, achieving the highest Q1 non-GAAP operating margin in the company’s history and really proving once again the leverage of our model.

Our non-GAAP operating income grew 29% to $2.2 billion. This quarter we came in at the midpoint of our license guidance, despite a very tough comparison to last year’s 35% license growth. The currency impact for the quarter was positive four points on revenue as compared to the five points I included in my June guidance. New software license revenues were up 14% to $1.2 billion, right at the midpoint of my guidance, adjusting for the change in currency impact. We saw exceptional strength in our technology license business, with revenues growing 27%, improving on last year’s Q1 growth of 23% and following our 23% growth in Q4 of 2008.

BEA contributed $84 million in the quarter but we need to remember that this is now a merged product with Fusion Middleware in most cases and so the allocations are not precise.

Our applications license revenue contributed $331 million in the quarter and that is down by 12% in the quarter, primarily due to the 65% applications growth we had last Q1. We are extremely pleased with our execution and growth in our applications business, since our application license revenue has more than tripled over the last three years.

Operating cash flows for the trailing 12 months increased by $1.3 billion to $7.9 billion, while free cash flow increased 20%. Product updates and support revenue was up 24% on a non-GAAP basis to $3 billion. Our first quarter product update and support revenue alone is now bigger than the total annual software revenues for all but the top five software companies.

As you can see, the scale of our business combined with our recurring revenue model enables us to deliver free cash flow, net income growth, margin improvement, and earnings growth.

In Q1, we bought back approximately 22.7 million shares at an average price of $21.97. As we have said, the rate of our buy-back will fluctuate each quarter, taking into account both our stock price and alternative uses for our cash.

Now, let me turn to guidance -- our as-reported guidance for Q2 will show a substantial change in exchange rates as the dollar has strengthened enormously. The currency contribution in Q2 last year was a positive seven points. Our currency assumption for this quarter is a negative three points.

Now, I want to remind everyone that we don’t actually predict currency -- all we do is take currency spot rates where they are today for the purposes of giving our as-reported guidance. In my guidance today, I’ll give you the constant currency range, the range as reported, and the currency assumption I use to get to the as-reported range.

If currency moved up or down during the quarter, you should assume that the midpoint of our as-reported guidance moves as well -- in other words, you should really just read through the currency impact.

The important point to remember on currency is it doesn’t impact our pricing or our competitive position as we do not adjust the global price list daily. So if rates in the quarter were to stay the same as they are today, the as-reported guidance assumes three points of negative currency impact on our Q2 growth rates.

With that, new software license revenues are expected to be up 5% to 15% year over year in constant currency and then 2% to 12%, assuming that rates stay where they are at negative 3.

Total revenue is expected to be up 12% to 15% year over year on a non-GAAP basis in constant currency and 9% to 12%, assuming today’s rate. Total revenue on a GAAP basis is expected to be up 12% to 15% in constant currency and 9% to 12%, assuming today’s rate. Non-GAAP EPS is expected to be $0.35 to $0.36 assuming today’s rate. GAAP EPS for the second quarter is expected to be $0.26 to $0.27.

This guidance assumes a tax rate of 27% for Q2 and 28.2% in Q2 -- versus 28.2 in Q2 last year as a result of our mix of earnings between higher tax and lower tax jurisdictions.

Our pipeline continues to grow at a very healthy rate. Our forecast looks good and I am using regular, meaning normal historical close rates. I want to emphasize that our Q2 license guidance is a function of a tough comparison against a very big quarter last year. In Q2 last year, we delivered 38% new license growth, 63% applications growth, and 28% technology growth.

Now, since it’s topical, let me quickly address financial services -- as I said at analyst day, our exposure to banking customers globally is in the low-single-digits. Our exposure to U.S. banks is even lower. The U.S. banking and mortgage situation has been playing out for months and we do not believe that it should have a material impact on our performance for the quarter. In addition, we’ve reviewed our exposure to financial institutions who are reported to be facing significant asset impairment and liquidity risk and have concluded that our exposure is de minimis and immaterial.

Now, before I turn the call over to Larry, I just want to welcome Jeff Epstein who is here with us today. Next quarter, Jeff will participate in this call as he will take over as CFO once we file our first quarter 10-Q.

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

Lawrence J. Ellison

Thanks, Safra. I would like to emphasize and try to explain while we are able to consistently improve our margins year over year, year after year, year after year. It’s because of economies of scale and there are two parts of that economies of scale story. First is the one that Safra mentioned, that our license renewal business, sometimes called maintenance, software maintenance, is now approximately half of our business and that’s an extremely high margin business and it continues to grow in a very healthy fashion, so that’s a reshaping of our business, where the highest margin portion of our business is now also the largest portion of our business.

And the second part of the economy of scale story is our market share growth across a number of product lines. Gartner recently -- by the way, the fact that we have number one market share is helpful for the following two reasons: when you have number one market share, you sell more of your product than anybody else, you are able to invest more in engineering, improve your product more rapidly, and simultaneously bring more money to the bottom line. So the fact that we sell more databases than anybody else means we can invest more in improving our database and every year that our database increases in market share, we can increase our investment in engineering and increase our profitability, increase the margin of our database business.

Our database business according to Gartner’s latest report, which covers the year 2007, lists the Oracle database with a 49% market share, which is larger than the next four competitors combined. In order, that means we are larger than IBM plus Microsoft plus Teradata plus Sybase with our 49% share. Again, that allows us to invest more in engineering and bring more to the bottom line.

Our fastest growing business is our middleware business, which grew 35% in Q1. Again, Gartner just reported on 2007 -- we think that 35% growth has moved us from number two to number in middleware. We’ve either passed IBM or we are about to pass IBM in the middleware business. Again, that will allow us to invest more in middleware than anybody else and bring more to the bottom line as we are number one not only in database but also in middleware.

In the application space, we have been for a long time number one in CRM. We are number one in ERP in North America. We are number one in a variety of industries, including communications, retail, and other. These number one positions again allow us to invest more in R&D while continuously expanding our margins.

I’d like to turn it over to Charles.

Charles E. Phillips

Thanks, Larry. I just want to make a few comments by major product area. We had a very solid quarter in technology and middleware, as you saw. I think of note our core enterprise edition database was the strongest quarter in over three years. I think we had excellent execution on integrating the BEA acquisition and we are very pleased with the product integration milestones we’ve reached and the overall customer endorsement of the strategy and the product line.

Larry mentioned the Gartner report on the database side. They came out with their annual database vendor market share and once again it showed Oracle expanding its market share lead. According to Gartner, Oracle accounted for 49% market share in database, which is more than the next four vendors combined -- IBM, Microsoft, Teradata, and Sybase. The report also showed Oracle gaining on Microsoft on the Windows platform as well. We grew 21% last year; Microsoft grew 16.5% according to Gartner.

In addition, we are seeing significant adoption of 11g on pace with the 10g adoption curve. We expect that momentum to continue. Since the August 2007 release of the Oracle Database 11g, we’ve had 450,000 downloads. Over 200 ISVs have certified and once a customer has upgraded, they are eligible for additional options, such as active data guard, advanced compression, total recall, and a very important one, real application testing. That one allows you to capture and replay Oracle's test applications and we’ve now back-ported that to 10g and 9IR2, so more customers can upgrade as they test their applications and get to 11g.

There will be an additional 11g update this quarter. It will contain some ease of use enhancements and a major dimension to the product line to be discussed next week. It’s more than a feature, let’s say -- it puts Oracle into a new segment of the database market, which should help us sustain the consistent market share gains we’ve enjoyed the last several years, so if you want to hear the details, please come on out to OpenWorld in San Francisco next week.

A short comment on the Linux platform -- our Linux product continues to do well. Some name brand customers standardizing on it this quarter -- State University of New York, Corning, Payless Shoe Stores, and Quantum Corp.

In the middleware area, we did a great job I think of actively integrating the BEA products, led by Thomas Kurian and his team. The majority of the BEA employees were retained. We’ve briefed over 5,000 BEA customers, so we’ve been aggressive in getting out there in front of partners and customers. We’ve conducted half the executive and technical briefings on BEA and the Fusion Middleware with over 1,200 partners and launched a 70-city worldwide tour to welcome BEA customers and partners. Next week, 1,500 BEA user group alumni are coming to OpenWorld, which is the same amount they had at their entire conference prior to the acquisition, so we haven’t lost anyone. We also created a BEA customer strategy council to get direct feedback from their largest 150 customers.

On the product side, as part of the 100-day release plan for BEA products, we announced which products we’d be shipping. We delivered each one of them. A few of them to talk about -- Web Logic Server 10g R3, [JRock] Admission Control, Web Logic Network Gatekeeper and several others.

As part of that same 100-day plan that Thomas and I talked about when we did the webcast in July, there will be an additional 19 products certified on the Web Logic Server 10g R3 platform within the Oracle product line this quarter. Those are all on track.

Some key customer wins -- ESPN was a competitive win over Microsoft on the dot.net platform; Capital One, some financial customers are still buying [inaudible]; City of New York, which was a broad platform deal; [inaudible] services from Marvel Entertainment, Nissan; big Oracle business intelligence wins at American Red Cross, [Marsh & McLennan]; content management with Abu Dhabi and the State of Kansas.

In the application area, some key ERP wins with Daimler -- that was a win over SAP for HR and recruiting; Avon Products -- that was a [inaudible] win; Illinois State University, where we beat Sun Guard and SAP for PeopleSoft [HDL].

CRM, we won at Farmer’s Insurance -- that was a win over Salesforce and SAP; we also released two Fusion-based applications in the quarter, one called Sales Prospector and the other one was mobile CRM for the iPhone.

In addition, we had good wins for our agile PLM product at Marvel and Clarion, which is a subsidiary of Hitachi. G-log transportation management, we beat SAP at Don Foods and All Express [and the largest] supermarket retail chain in Brazil.

Some very key strategic wins in core banking platform -- Deutsche Bank chose us for the FLEXCUBE Private Banking; Société Générale for FLEXCUBE Universal Banking; and JPMorganChase for [inaudible] for credit and operational risk management -- sounds like a lot [inaudible] about that a year ago.

And then retail, Carrefour, the largest retailer in Europe, and our enterprise tax product, which we are pretty much the leading vendor there, not many off-the-shelf products there, we won the North Carolina Department of Revenue. They are going to move their tax system to an off-the-shelf product from Oracle.

Telecommunications, Telecom Italia and Samsung Networks for billing and revenue management, and then some interesting go-lives in the quarter -- Facebook went live on EBS R12. They went live in nine months. JDS Uniphase went R12 in Demantra, live in three months. [inaudible] International went live on Demantra and Land of Lakes, live on JD Edwards 8.12 and Hyperion.

Overall, we feel really good about where we sit. I think we are being viewed as a very safe partner for both customers and employees in the marketplace. It’s getting easier for us to hire [the competition]. We’ve got some great upgrades and key hires in key countries around the world. Our licensing organization is approaching 19,000 around the world and that’s a key strength in the marketplace and we look good from where we sit.

I’ll turn it back over to Roy.

Roy Lobo

Thank you, Charles. So with that, I’d like to open the call for questions and answers. Operator.

Question-and-Answer Session

Operator

(Operator Instructions) We’ll go first to Sara Friar with Goldman Sachs.

Sarah Friar - Goldman Sachs

Good afternoon. Thanks a lot. Two questions -- first on the margin side, you are off to a great start overall for the year but Safra, could we really think about fiscal ’09 being yet another margin expansion year for you? I know with BEA folding in originally we kind of thought it would be more flattish to slightly down.

Safra A. Catz

No, I actually expect us to continue to improve margins as the operating leverage in the business really continues. As Larry mentioned, at our size we have enormous economies of scale, both because of our back office and our distribution capability but most importantly, we have an enormous maintenance space. These are our existing customers paying us annually for the right to receive the newest software that we are writing and that’s a very highly profitable part of our business because we are spending the $3 billion in R&D already to build those products, so we expect margins to continue to expand.

Sarah Friar - Goldman Sachs

And even in a tough environment, I’m presuming that still gets quite protected because most -- a lot of it is coming out of that maintenance stream. That’s quite sticky, correct?

Safra A. Catz

Well, it’s extremely rare for a customer not to renew their maintenance contract. They still need to run their business and our software is absolutely critical to really most of the industrialized world to run their businesses so we are very much required and they are going to renew their maintenance contracts with us.

Sarah Friar - Goldman Sachs

And then could I just follow-up on geographic -- anything that you saw, Europe weakening -- I know it’s a tough quarter because it’s European summer so it’s hard to tell if it’s weak or if it’s just the summer but it looked like apps in particular in Europe were perhaps weaker than normal.

Safra A. Catz

All you are really seeing, it was really nothing special at all about the quarter. Remember, it’s Q1, small differences make a big difference, and it was a very difficult comparison and that’s really all you are seeing and because it’s Q1, it’s always the small quarter in comparison, obviously not in comparison to other companies but in comparison to the Q4 that it follows, so smaller differences just have a larger impact percentage wise. Nothing special at all this past quarter.

Sarah Friar - Goldman Sachs

Okay, great. Well, thanks very much.

Operator

We’ll go next to Heather Bellini with UBS.

Heather Bellini - UBS

Good afternoon, guys and nice margin quarter as well. I had a question, Safra, just in regard to the current macro environment and the impact the volatility in the stock market is potentially going to have on deal closings. I think that is something a lot of people in the market are concerned about. You mentioned you feel confident about your exposure to financial services. I was just wondering, in the past you’ve shared with us your assumptions behind close rates for the upcoming quarter in terms of whether you were using in line with normal historicals or whether you might be being a little bit more conservative going into November, given the environment we are in.

Safra A. Catz

Actually, the close rates that I’m using are very much in line with where historical rates are. You know, they move around a little bit quarter to quarter. There is nothing particularly special about these rates. I think they are sort of completely appropriate and consistent with previous years and quarters, et cetera, and what’s going on right now. I’ve not gone out of my way to make any adjustment, actually.

Heather Bellini - UBS

Okay, and the quick follow-up I have would be what was your experience in August? Was your close rate in line with normal assumptions in the August quarter?

Safra A. Catz

Yeah, they were within sort of our normal range of close rate, nothing special. It’s a real nothing special quarter.

Heather Bellini - UBS

Okay. Thank you very much.

Operator

We’ll go next to Peter Goldmacher with Cowen.

Peter Goldmacher - Cowen & Company

Thank you. Can you talk a little bit about when you all talk to customers, if you are working through a big deal, what is generally their purchasing priority? Is database capacity far more important than applications? Is middleware more important than database capacity? How does services fit into that whole mix? I don’t want to make more of an issue over the negative apps comp because I know it’s off a really tough comp but as you guys go forward, every impression I get is that spending intentions are softening a little bit and where would you expect to see it show up first?

Charles E. Phillips

Well, it all seems to be important. I mean, these are normally project-driven and sometimes different buyers in the same company, so I’m not sure you can segment it like that but these are things they are going to have to do eventually and where they fall, whether it’s this quarter or next quarter, they do get them done. These are customers that are normally buying from us who are already customers, so they are extending their relationship and automating things that need to be automated and lowering their cost.

Lawrence J. Ellison

And let me add that if you look at the buying intentions, we follow it pretty closely, that the Oracle brand has bubbled to the top into a number of these surveys and while their might be some softness in the overall number for buying intentions, Oracle has held up better than its peers.

Peter Goldmacher - Cowen & Company

No, I’m not -- it’s clear with your results that you guys have held up better than your peers but if I understand what Chuck is saying, there’s no real -- your customers generally don’t make a distinction between the database budget and an application budget, things just -- they either have a budget or they don’t and they plow it through regardless?

Lawrence J. Ellison

Yeah, I think each customer has a different set of priorities so it depends where they are, what they deem their most important investment, if it’s business -- some are buying business intelligence, some are moving to our SOA suite in middleware, some are expanding their database capability, others are putting in a new CRM application. So it really varies an awful lot customer by customer. I don’t think we can say any one product line is seeing more demand.

I think we are taking more share because we are a relatively smaller middleware player than we are a database player, so our middleware business is growing faster because we are taking share at a faster rate in middleware than we are in database but we are taking share in both.

Peter Goldmacher - Cowen & Company

Okay. Thank you.

Operator

We’ll go next to Adam Holt with Morgan Stanley.

Adam Holt - Morgan Stanley

Good afternoon. I had a couple of questions, maybe fleshing out the strength in the technology business. Charles, you mentioned that the core database was one of the stronger numbers you saw in I think three years, you said. I was wondering if you could talk about why you think it was so strong in the quarter and then maybe update us on options and some of the other elements there.

Charles E. Phillips

Yeah, I do think 11g has been out long enough now. We’ve gotten an ISV base of around 200, like I said earlier, that helps people [where we can upgrade], and I think just the strength of the product and the relative lack of response from the competition, the distance between what we have and what everybody else has is widening, which I guess is kind of hard to believe after 30 years but that still continues to be the case.

Lawrence J. Ellison

I think more people are making standardization decisions and an awful lot of people are entering into license agreements where they are -- those license agreements reflect the fact they’ve decided to standardize their database going forward on the Oracle platform and again, that’s why our share is growing. We are getting more and more of these standardization decisions.

Charles E. Phillips

And we are seeing a bubble of migrations off the mainframe. That happens -- it’s hard to predict when that happens so we have a whole group focused on that and they’ve been doing pretty well the last couple of quarters.

Adam Holt - Morgan Stanley

Terrific. If I could just ask a follow-up on BEA, it looked like the revenue numbers were a little bit better than I had expected and it was possibly maybe even a little bit more accretive than we had expected. It’s obviously early days but could you just give us an update on where you think you are on the integration there? Thank you.

Safra A. Catz

Well, if you are talking about operational integration with BEA, we’re well along on all of it. We’ve got product roadmaps and products out. We are operationally one company, as we were very, very quickly after the acquisition. It’s going very, very well. Customers are delighted. We acquired BEA very much because it made a lot of sense for our customers and it was enormously important for us strategically to move to number one in middleware.

So the reality is customers are delighted, they are voting, continue to vote with their pocketbooks, and operationally we are completely moved on and integrated. So everything is going very, very well at BEA. It was always a very good deal for us financially and it’s a fantastic deal for us strategically.

Charles E. Phillips

I think from a product perspective, this is one of the fastest starts we’ve ever had to product integration. We had a strategy of embracing standards and being the [inaudible] in the middleware area already so many of our products already coexisted and interoperated with BEA and we knew exactly what we wanted to do when we got in-house and again, Thomas Kurian did a great job of delivering that in the first quarter.

Adam Holt - Morgan Stanley

Great. Thank you.

Operator

We’ll go next to Kirk Materne with Banc of America.

Kirk Materne - Banc of America Securities

Thanks very much. Safra, it sounded from your comments like the apps business, while it was up against obviously a very tough comp, came in about as planned and two questions around that -- one, I’m assuming by your comments that the pipeline in the applications business is building as you would expect in the first quarter. And then secondly, we’ve heard obviously because of the macro environment some competitors in that particular area are becoming more aggressive on pricing and I just want to get a sense of whether or not you had some irrational pricing going on in some of the deals by say some of the smaller players, if that had any impact in the quarter or not at all. Thanks.

Safra A. Catz

The apps pipeline is very healthy. The pipeline period at the company is overall very good, very healthy. We are very pleased with where we are at on that.

As far as apps vendors getting irrational -- I’ll tell you, the apps business, as all our businesses remain competitive but there’s nothing new at all. We are not seeing anything specific, anything new in pricing. Our win rates are extremely good. We are very pleased with them and they continue to do very, very well.

So it was simply a matter of just a very tough comparison -- I mean, imagine this business is just so much larger than it was just three years ago.

Kirk Materne - Banc of America Securities

And if I could just ask one really quick follow-up for Charles, just around the vertical markets for the applications business, were there any sort of stand-outs for you at all this quarter?

Charles E. Phillips

I think the utilities business did a great job. That’s utilities and tax. It’s smaller numbers but in terms of customer wins and year-over-year growth, we’re finally getting our feet on the ground and getting some traction there and this tax market could be a large one, since there’s not really a product out there that for large organizations that need to collect taxes, they usually build that for many, many years. So that one stood out.

We had some good design wins in financial services. I think retail kind of hit their number but the pipeline going into next quarter looks even better. So overall, not bad on the industry side.

Kirk Materne - Banc of America Securities

Thanks very much.

Operator

We’ll go next to John DiFucci with J.P. Morgan.

John DiFucci - J.P. Morgan

Thank you. Just a quick follow-up on the macro side -- I know you said you really haven’t seen a whole lot unusual and you continue to execute better than most but as Safra said in the past, you all read the papers too and you see what’s happening out there and there’s been other tech companies that have come out and said that they are starting to feel the softening out there and you seem to be able to weather through that. I’m just curious -- why do you think that’s so and when do you think perhaps you might start to see it, or give a little color around that?

Safra A. Catz

Well you know, we can’t see into the far, far away future and -- but I’ll tell you, the reality is that the company has so much momentum, such a broad product line that if a customer is buying they are much more likely to buy from us because they have a lot of experience with us and they still have to do whatever it is they need to do. You know, it’s very -- if they’ve got to decide something not to spend on, it’s probably with some smaller guy or something that’s a little bit less strategic and less important.

The company has just a lot -- you know, has a very broad product line, has a lot of very dedicated, committed customers. We’ve got -- our big show is coming up next week. We’ve got over 40,000 folks showing up and so it’s a real -- it’s quite different than what you are reading or seeing on CNBC but the truth is our business has a lot of momentum and we just continue to sort of have our heads down and continue to execute.

John DiFucci - J.P. Morgan

Thank you, and Safra, just a quick follow-up on something you said earlier -- you said that you don’t adjust global pricing daily and so hence the constant currency rate issues. But I’m just curious -- how often do you adjust global pricing?

Safra A. Catz

Anywhere from every six months to annually. It’s dependent on how much movement there’s been.

John DiFucci - J.P. Morgan

Okay. Thank you.

Operator

We’ll take our final question from Brent Thill with Citigroup.

Brent Thill - Citigroup

Thanks. You’ve been fortunate to generate $8 billion in operating cash flow and when you look at how you are redeploying that to M&A versus buy-back, I think Safra, you are on pace to equal the buy-back of last year, assuming you keep the $500 million a quarter. But that’s still down from $4 billion the year before, so I guess when you look at balancing the buy-back versus M&A and Larry’s comments about when the economy gets tougher, you would potentially ramp up the M&A machine. Can you just walk through how you are thinking about that balance?

Safra A. Catz

Sure. We actually bought back $4 billion two years ago, or more than two years ago, actually. We’ve been sort of on this pace mostly because we needed the money to pay for Siebel and to pay for Hyperion and to pay for BEA, and so we’ve sent a couple billion back a year for the past couple of years now and we have, depending on what there is, we are somewhat opportunistic but we also look at things, acquisitions as how important they are for us strategically. And of course, we keep in mind where our own stock price is and so we just are always looking at what’s the best use of our cash. I could tell you one thing -- we’re not going to sit around on it necessarily. We are going to send it back to the shareholders or we are going to acquire things that give us earnings, that the shareholders can then benefit from.

So we are not going to necessarily load up a big pile of cash and sit on it. We are going to do one of two things -- we are either going to spend it on deals that bring earnings to the bottom line or we are going to send it home to our shareholders.

Brent Thill - Citigroup

Great. I know you mentioned Europe, but I think that’s one area that we’ve been getting questions from your investors as it relates to the applications number being the weakest in that region but just to stress that there was nothing unusual in Europe that you saw -- just the comp was it.

Safra A. Catz

Yeah, they are really -- you know, you have to look back on what happened in Europe last Q1. It was up 78% -- just there was nothing interesting happening in the Q1 of FY09. It all has to do with the comparison to FY08’s Q1. That’s all that’s going on there -- small numbers have a big impact, especially in Q1. Even within quarters -- that’s why if you really want to understand the business, you’ve really got to look at it trailing 12 months or annually. It’s going to bounce around in the quarters when you have comparisons year over year that are just so massive.

Brent Thill - Citigroup

So your expectation was applications will rebound to positive growth in Q2 and beyond?

Safra A. Catz

Well, for the year we expect the applications business to grow for the year because it’s a growing business and it’s been growing. In any particular quarter, it could move around depending on what the comparison was, especially as you start getting more and more granular by region. Then it’s really bouncing around all over the place and you really, you just look at the spreadsheets we issue with this release and you will see that these things are bouncing around quite a bit quarter to quarter, very dependent on how tough or easy the comparison was a full quarter ago in that region.

Brent Thill - Citigroup

Thanks, Safra.

Operator

And that concludes our question-and-answer session. I would like to turn the conference back to Roy Lobo for any closing remarks.

Roy Lobo

Great. 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, pass code is 8926904. You can access the webcast replay on the Oracle investor relations website. The webcast replay will be available through the close of market on September 25th.

Thank you, everyone, and with that I would like to turn the call back to the operator for closing.

Operator

Thank you, everyone. That does conclude today’s conference. You may now disconnect.

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Source: Oracle F1Q09 (Qtr End 8/31/08) Earnings Call Transcript
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