Analyst Conference Summary


conference date: March 25, 2010 @ 2:00 PM Pacific Time
for quarter ending: February 28, 2010 (third quarter fiscal 2010)

Forward-looking statements

Overview: Strong sequential revenue growth, but earnings declined y/y. Sun acquisition during quarter makes comparisons tricky.

Basic data (GAAP) :

Revenues were $6.40 billion, up 9% sequentially from $5.86 billion and up 17% from $5.45 billion in the year-earlier quarter.

Net income was $1.19 billon, down 18% sequentially from $1.46 billion, and down 11% from $1.33 billion year-earlier.

EPS (earnings per share) were $0.23, down 21% sequentially from $0.29 and also down 13% from $0.26 year-earlier.


Includes Sun. Using conservative close rates, and exchange rates at current levels.

Q4 2010: new software license 3 to 13% up. $1.2 billion to $1.3 billion hardware revenue. 36% to 37% non-GAAP revenue growth. $0.52 to $0.65 non-GAAP EPS. $0.37 to $0.41 GAAP EPS. Assumes 28% tax rate.

Conference Highlights:

Oracle proclaimed quarter as fantastic. Excluding acquisition of Sun on January 26, 2010, GAAP revenue grew only 7% y/y. Sun integration is going well and will contribute significantly to fiscal Q4 EPS. Customers are responding well to the acquisition. Oracle will no longer sell products at a loss; will be more profit oriented, moving to value-added revenues from commodity revenues.

Excluding Sun, revenues were still at high end of guidance. Foreign exchange rates helped.

Non-GAAP numbers: revenue $6.5 billion, up 18% y/y. Operating income was $2.9 billion, operating margin 45%. Net income was $1.9 billion, up 9% y/y. $0.38 EPS.

New software license revenues were $1.7 billion, up 13% y/y. Software license updates and product support produced revenues of $3.3 billion, up 13% y/y. Hardware systems revenues were $458 million. Services revenue $931 million, down 9% y/y.

Database and middleware and application businesses all did well.

Exadata continues rapid growth. Pipeline is now near $400 million.

Cash dividend of $0.05 / share declared.

Cash and securities ending balance $17.48 billion. Notes payable and other debts $15.7 billion. 10.3 million shares bought back for about $24.28, with $250 million cash use.

Operating expenses of $4.56 billion included: $1.24 billion for sales and marketing; $281 software support expense; $322 million hardware systems expense; $816 million services expense; $823 million research and development; $236 million general and administrative; $502 million amortization of intangibles; $34 million acquisition related; $306 million restructuring expense. Leaving operating income of $1.84 million. Other expense was $261 million. Income taxes $393 million.

Growth geographically was strong in Americas and Asia, weak in Europe.

Now has Sun server clusters with Infiniband network, Oracle database and middleware. Exadata can beat IBM machines by a factor of ten. Oracle believes its combination of hardware with software is creating a large pipeline of deals.


Upside opportunities from Sun? We are ahead on all fronts operationally. We work with customers differently. We are now on a build to order model. Many customers need higher quality support that will come from Oracle. We look at margin on every transaction; losing money was often the case for high-performance computing centers.

Close rates were flat compared to last year. Pipeline is big, close rates for guidance are conservative but realistic. Our customers seem enthusiastic.

We did not break out Sun revenues or expenses because we merged the companies quickly. You can't extrapolate Q3 revenues that are Sun related to Q4. Operating margins will be lower because hardware margins are traditionally lower than software margins.

Exadata role? First version was aimed at Teradata type systems for large scale data warehouses. Version 2 extends to transaction processing. We will get better and better at transaction processing. All database applications will run better on an Exadata machine.

Telecoms need to provision content to cell phones, for example. Oracle does that; SAP does not even compete. So we are very competive in the vertical, and in others for similar reasons. SAP does not have a lot of edge applications or industry specific applications.

We are not cutting back everything at Sun. We have some great Sun products coming out. Selling Hitachi storage systems does not make money; selling the Sun 7000 makes money, so we are discontinuing Hitachi sales, for instance.

Clients are lined up to take Fusion application suite products this calendar year. Business Intelligence (BI) is built into Fusion.

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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 2010 William P. Meyers