Analyst Conference Summary

Oracle
ORCL

conference date: September 16, 2009 @ 2:00 PM Pacific Time
for quarter ending: August 31, 2009 (1st quarter fiscal 2010)


Forward-looking statements

Overview: Weak revenue with strong earnings; look out for Sun merger issues.

Basic data (GAAP) :

Revenues were $5.05 billion, down 26% sequentially from $6.86 billion, and down 5% from $5.33 billion in the year-earlier quarter.

Net income was $1.12 billion, down 41% sequentially from $1.89 billion, but up 4% from $1.08 billion year-earlier.

EPS (earnings per share) were $0.22, down 42% sequentially from $0.38, but up 5% from $0.21 year-earlier.

Guidance:

Using current exchange rates, there will be a 4% positive effect on revenue growth, 5% on net income (or $0.02 per share). Tough year-ago comparisons, and excluding Sun Microsystems acquisition. Non-GAAP EPS $0.35 to $0.36, up from $0.34 last year. GAAP EPS $0.26 to $0.27, up from $0.25. Revenue negative 1% to up 2% y/y at current exchange rates; -2% to -5% in constant currency. 28.5% tax rate assumed.

Conference Highlights:

"Disciplined expense management," drove earnings. Took more market share from SAP. Slower than usual growth in database and middleware license revenue in Europe and Asia-Pacific.

Sun Microsystems acquisition timing depends on regulatory approval.

New software license revenue was $1.03 billion, down 17% in U.S. dollars, less in constant currency. Software license updates and support revenue was $3.12 billion, up 3% in U.S. dollars. Services revenue was $0.91 billion, down 22% in U.S. dollars.

GAAP operating margin was up 500 points y/y to 34%.

Non-GAAP numbers: net income was $1.5 billion, flat y/y. Operating income up 7% to $2.3 billion. Operating margin was 46%, up 5.7%. Highest operating margin in Oracle's history. EPS $0.30, up 3% y/y.

Foreign currency exchange rates reduced GAAP earnings by $0.02 per share. U.S. dollar strengthened compared to Q1 2008. Revenue was down only 2% in constant currency.

Cash dividend of $0.05 per share declares.

Exadata Version 2 announced for data warehousing and online transaction processing (OLTP) with hardware by Sun. We have a lot of Exadata customers. Exadata 1 had 10x to 50x speed increase compared to competitors; Exadata 2 is twice as fast. Two Exadatas are as fast as IBM's fastest OLTP machine at one-quarter the price.

Oracle database 11g was released. Makes installation easier. Also 11g middleware.

Operating expenses of $3.31 billion included: sales and marketing $950 million; software support $226 million; cost of services $782 million; research and development $660 million; general and administrative $201 million; amortization $431 million; acquisition related expense $6 million; restructuring $48 million. Interest expense was $179 million. Income tax provision $438 million.

$243 million in stock repurchases in the quarter. $20.6 billion in cash and investment investments at end of quarter. Increase was mainly from $4.5 billion debt offering and $3.7 billion operating cash flow.

Q&A:

Linearity in quarter, new quarter? Linearity was typical. Lightness mainly from ISVs who sold less of their own applications, and therefore less database with them. New quarter is looking good.

Maintenance base continues to grow. The leverage of our business is that revenues increase faster than expenses; scale is a huge advantage in this business. So we expect continued improvement in y/y margins, but maybe not as fast as in this quarter.

11g release revenue impact? We bought middleware companies over the years. The new version is a result of those teams updating their components into a unified suite. We believe this gives us a huge advantage over IBM. Applications continue to move from mainframe computers to Linux and Unix open computers, where we have a database advantage as well.

Sun integration? We are allowed to do integration planning. There were always a big partner. The Exadata announcement is an example of what we can do.

Summer in Europe is usually slow, but summer 2008 we did very well. We are seeing European economies improve a little bit now.

Strength in the Americas? We are taking share from SAP in Americas. We are better vertically integrated.

Guidance in EMEA? Pipelines are growing, we are assuming conservative close rates in our guidance.

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Disclaimer: Our analyst summaries may include both our condensations of statements made by company representatives and our own analysis. They are not covered by any warranty. We cannot guarantee anything said by company representatives is true. We try not to make errors, but it is possible. Before making or terminating an investment you should always verify any factual basis of your decision.

Copyright 2009 William P. Meyers