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By zoningfool
June 30, 2005

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I was able to listen to the cc on a replay, but I can't bring it back up to clarify some points. In any case, these are my notes so far:

2 biggest takeaways for me were:

According to Safra Catz: they completed Sarbanes-Oxley 404 assessment of internal controls--will report in the 10-K (which will be filed within a week) that internal controls were effective.

According to LJE: on the topic of acquisitions--there are no plans to buy anything that doesn't contribute to Oracle's long-term strategy of achieving a profit growth target of 20% per year over the next 5 years.

Other highlights:

In 2005, they saw a recovery in demand and market share improvement in all product areas.

DB/middleware new software license revenues were up 16% for the quarter, 13% for the year. Applications server business was up 30% for the quarter, applications were up 52% for the quarter, 28% for the year.

They have successfully integrated PeopleSoft sales and service organization as well as development and they believe they are gaining market share in applications, particularly in N. America.

PeopleSoft customer retention is in the high 90% range.

In terms of specific products in DB :
--Enterprise Edition was up 16% in Q4
--Standard Edition was up 4% in Q4
--DB Enterprise Options was up 15% in Q4, 18% for the year, driven by RAC growth of 27% during the year and enterprise management partitioning growth of 22% for the quarter, 17% for the year.
--Fusion Middleware was up 30% for the quarter, 23% for the year.

Deals over $500,000 increased from 44% to 47% in the quarter, however, there were no really large deals during the quarter, as reported in the press--the largest deal was $16M.

Operating cash flow for the year was $3.6B up from $3.2B in 2004. FCF increased 12% for the year, and represents 117% of net income.

Guidance:

Total Revenue growth of 32-34% to $2.92B-2.98B in Q1 2006
New software license revenue growth of 15-25%
Total software revenue growth of 31-34%

EPS growth of 33-36% for Q1 2006

Total Revenue growth for FY 2006 of 17-19% to $14.2-14.4B
Software revenues growth of 17-19% to $11.3-11.5B
New software license revenue growth of 11-16% to $4.5-4.7B

EPS of 78-81cents

2% currency effect vs. 4% for 2005

LJE-- regarding DB revenues:

He highlighted the 3 DB studies by Gartner, IDC and Morgan Stanley, stating that while they disagreed about the amount of market share, they were all in agreement that Oracle was gaining market share while IBM's DB2 was in decline. He attributes this to a move from mainframes to the grid and Oracle's ability to use multiple computers to manage a single database which is unique to Oracle ("Microsoft can't do that; IBM can't do that"). This is what differentiates Oracle vs. Msft at the low-end and IBM at the high-end.. He believes the most important feature differentiating Oracle from Microsoft and IBM is being able to use a group of low-cost, Intel pc servers to replace the mainframe, with absolute fault tolerance to keep the applications running. "The grid is faster, costs less, and never breaks" and this is a huge differentiator. SAP just certified the Oracle grid to run SAP's applications, but hasn't certified IBM or Microsoft multi-computers.

On middleware: according to LJE, middleware revenues were growing faster than DB (up 30%) while BEA was in decline. He pointed out since Oracle charges less than BEA, they must be well ahead in units. He attributes this growth to Oracle's introduction of a middleware "suite" which includes the Java application server, portal, business intelligence and integration technology.

On applications-they are growing market share, especially in certain geographies and industries. In N. America, they are stronger than SAP, with 71% growth in application revenues. They are also stronger than SAP in banking, financial services, telecom, healthcare, education. Where they are strong, they are getting stronger.

As the business is growing, it is getting more complex as the product-line diversifies. Therefore, they have added depth to the management team, including the recent hiring of Greg Maffei, formerly of Microsoft, as well as Todd Nielson from Msft and Beas who runs middleware along with Tom Curry. The articles in the press stating that management is being poached by SAP aren't accurate.

Charles Phillips:

Described Project Fusion as the project to get to the next generation of standard-based applications.

Oracle Fusion Middleware is the entire middleware product line which has 26,000 customers vs. 17,000 for BEAS and 1,000 for SAP's Netweaver.

They are building applications to take advantage of their world-class middleware features. In the mid-market, there were 74 deals for the E-business suite in APAC alone in Q4. There were a number of wins which were either SAP replacements or head-to-head wins against SAP, including: the Dept. of Homeland Security, Hitachi, RBS, Citicorp, Cisco, America Express, Cingular, Canon, Symantec, Alcoa, Starbucks, the state of Ohio, Best Buy, American Power and Motorola.

From the Q&A:

Project Fusion will support other Java application servers. Openness is part of the Project Fusion strategy, making sure customers have a choice, but they haven't made a decision about supporting mulitple DB's.

Fusion will be the first suite of applications based on industry standards, with fusion applications being able to run on any application server. LJE states this is what the customer wants and what the industry will move to. He believes taking all the functionality of Oracle, PeopleSoft and JDEdwards and basing this on industry standards will be a huge competitive advantage for Oracle.

About organic growth--LJE pointed out that DB revenues were up 16% and middleware revenues were up 31% which was all organic growth. They don't breakout Psft vs. Oracle applications because of they way they license the products. Safra Catz add that the sales force is totally merged, there were not Psft salespeople and Oracle salespeople, but salespeople for General Motors, etc.

About sales force restructuring in the future, Chas. Phillips remarked that they had to do the restructuring early because of the PeopleSoft acquisition, so that was done early. They are not aware of any PeopleSoft customers stopping maintenance in favor of a third-party or in-house option.

LJE on RAC--RAC and grid-computing is moving out of the early adopter phase. Economics, reliability, and performance are reasons RAC will accelerate.

On the 10G R2 release--according to LJE, it's a few months away, but there are a lot of reasons to adopt 10G R1 and there is an acceleration in 10G as RAC is purchased and deployed

When asked about pull-through, LJE pointed out there were synergies throughout the product lines: as DB increases penetration, it helps middleware sales, as middleware gets better, it helps applications, as applications get improves, it helps DB and middleware get stronger.

A primary advantage over SAP is that Oracle's applications are secure. SAP doesn't have the full software stack that can provide this level of security.

The strategy in Europe, SAP's backyard, will be to focus on Oracle's areas of strength--specific industries such as banking, financial services, telecom, healthcare, education, retail, engineering and construction.

There is no inflection point regarding deal size foreseen.

There is still a focus on the high-end and mid markets.

They are adding a new channel partner in the form of JDE resellers and will take advantage of this channel in the future.


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