Oracle Delivers a Solid Q2
The results were better than expected. Earnings on a per-share basis were 64 cents, three cents above the consensus of 61 cents. Sales were $9.11 billion, beating the consensus estimate of $9.03 billion.
As usual, we’ll be listening for hints from Oracle on the state of overall IT spending, which could have important implications for other companies, including Hewlett-Packard, SAP and IBM.
Also, though much of Oracle’s corporate legal dramas with HP and Google have quieted for now, it’s possible that CEO Larry Ellison will have some colorful words about his various competitors.
Update: The call is now over and you can read my abbreviated transcript below. (Sorry, I joined late.) A few highlights: President Mark Hurd declared that Oracle plans to hire more sales people, and to do so fairly aggressively. Ellison reminded the analysts on the call that the surge in hiring has been done without adding much to the expenses. CFO Safra Catz said that sales to federal customers are healthy despite the worries about the federal budget’s “fiscal cliff” that is looming at the end of the year.
2:18 pm: Joining late after a technical foul-up. The Q&A session has already started.
2:19 pm: Question from Merrill Lynch about growth rates of Exadata. Are you tracking closer to the billion-dollar run rate? Also, any changes in customer behavior in regards to the fiscal cliff?
President Mark Hurd: We’re changing nothing. Generally speaking, that’s the trajectory we’re on.
CFO Safra Catz: We’re having a wonderful December so far. People are wanting to spend their budgets. I can tell you our federal customers have been spending money with us even in December.
Question from Wells Fargo: Sales performance and productivity. There were changes in headcount and software licensing. Curious about productivity ramping for net new hires and heading into Q4.
Hurd: Without making too many forward-looking statements, in general we feel great. We’re hiring the best people in the industry and getting them ramped and oriented to sell and beat competition. We’ve lined up our sales force against the secular competitors and trained them to be experts in their products. We don’t expect them to be very productive for the first twelve months. If they are productive, that’s gravy. We feel great about the talent we’re attracting and we feel great about getting them inside. And we’re still hiring.
CEO Larry Ellison pipes up: We’re also hiring in BI (Business Intelligence).
Ellison: Mark and his team have done an extraordinary job of ramping the sales force without increasing the cost. We’ve kept expenses pretty close to flat. We’re going to keep doing that for the next 18 months. We’re going to add to capacity without adding expense.
Question from Goldman Sachs: Given all the enhancements you’ve made with Fusion, can you speak to attach rates of add-ons? Also, given successes you’re seeing in the cloud subscription line, how does that affect the growth rates?
Hurd: Our attach rate, we look at it over a number of years. In the quarter, we had a significant number of logos where we closed a module. It’s a core part of our strategy. (He’s talking about selling additional software modules that work with different software apps.)
Here’s one key bit of news that occurred before I joined the call: “Oracle said it expects new license software revenue growth in the range of 4 percent to 14 percent on constant currency basis and 3 percent to 13 percent in reported dollars. Hardware product revenue growth is expected to range from a negative 10 percent to flat in constant and reported dollars.”
Question about a year-end budget flush.
Catz: Folks wanted to close deals in November and they want to close deals in December. No impact on pricing.
2:30 pm: Ellison is speaking a bit about Oracle 12c and the cloud. He mentioned Salesforce.com as a customer. He says it’s also appropriate for customers building private clouds. The key feature he says is that 12c moves multi-tenancy into the database layer.
Catz: Our customers who are paying for license updates are entitled to the product. Over time they will update to it over a number of years. It will make us more competitive.
Hurd: We had good solid growth in every region in the database business.
Final question from Stifel Nicolaus: Give us some color on increases in coverage in vertical businesses.
Hurd: We put a lot of effort into our verticals. Those are discussions we’re having at the CEO level. The implications are huge. We’ve invested a lot of R&D. We feel great about our position in communications, and in retail. We’ve made big investments in financial services, not just in product, but scaling out the sales force.
And that wraps up the call.