Oracle Corporation (ORCL)

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Oracle (ORCL)

Q2 2012 Earnings Call

December 20, 2011 5:00 pm ET

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

Presentation

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.

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