Analyst Conference Summary

Oracle
ORCL

conference date: December 19, 2007 @ 2:00 PM Pacific Time
for quarter ending: November 30, 2007 (2nd quarter fiscal 2008)


Forward-looking statements

Overview: Another quarter of strong growth.

Basic data:

Revenues were $5.31 billion, up 18% sequentially from $4.5 billion and up 28% from $4.16 billion year-earlier.

Net income was $1.30 billion, up 55% sequentially from $840 million and up 35% from $967 million year-earlier.

EPS (earnings per share) were $0.25, up 56% sequentially from $0.16 and up 36% from $0.18 year-earlier.

Guidance:

New software revenues up 15 to 25% year over year. Total revenue up 21 to 24% y/y. Non-GAAP EPS expected at $0.29 to $0.30. GAAP EPS $0.23 to $0.25. But currency impact could be different from what we assume.

Conference Highlights:

"We exceeded our guidance and our best case forecst with strong revenue growth across all product lines and geographies." We took share from SAP and IBM. Revenue growth was not dependend on any particularly large deals. We are growing our customer base rapidly. Our strategy for growth is to sell industry specific applications and cross sell other products.

New software license revenue was $1.67 billion, up 38% from year-earlier. Software license updates and product support revenue was $2.5 billion, up 24%. Services revenues were $1.15 billion, up 22%.

Operating expense of $3.53 billion included Sales and Marketing $1.1 billion, product support $246 million, cost of services $992 million, R&D $674 million, general and administrative $206 million, amortization of intangibles $290 million, acquisition related $22 million, and restructuring $6 million.

Operating income was $1.78 million. Interest expense $89 million. Non-operating income $122 million.

Non-GAAP measures exclude $63 million in stock-based compensation, $290 million amortization, $22 million acquisition related and $6 million restructuring. Pretend those aren't real and you get a 41.3% operating margin of $2.21 billion of operating income, net income of $1.61 billion and diluted EPS of $0.31, up 40% from year-earlier.

$553 million of revenue was from applications licensing, up 63% y/y. Database business grew 19% in the quarter, far faster than the market. Middleware grew 80%, gaining on IBM; it is hard to tell with Microsoft because they bundle their middleware with the operating systems.

All geographic regions did well.

Bought back 23 million shares at an average price of $21.12.

Cash, equivalents and marketable securities totaled $8.4 billion.

Currency exchange rates had a positive impact on the numbers.

We are aware of macroeconomic concerns, but we have been delivering growth through the turmoil. We are a net exporter so the low dollar has helped us.

We believe the current BEA board is not friendly and will not do a deal at a price that works for Oracle.

Q&A:

Margin guidance, op ex in Q3? Should be about the same as Q2.

Macro stresses on application business? We are so broadly diversified by geography and product line we feel rather good. You can defer an ERP implementation for a couple of years, but the newer applications are harder to defer. Our hottest vertical is telecommunications that must offer customers new products.

To what extent have you penetrated vertical markets? We think we are very early in the process, and we intend to go into more verticles.

Most customers are already convinced as SOA as a technology, it is a standard technology, and SAP does not have an offering there. But SOA adoption will take 10 to 20 years. Right now it is accelerating. We have many special SOA products and suites. We did well getting ISVs onboard; now over 5000.

Is the 50% margin target current. We still see it in the future, it depends on our growth rate and level of investment. Profitability is very important to us.

Pipelines remain strong. I always assume lower closure rates than historical for our guidance.

Database growth detail? We add new categories of options with each release, some released last year did very well. 11g announcement helped. Thinks will continue to grow in double digits, faste than market.

Government markets? Has been a strong market for us and we are doing well there.

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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 2007 William P. Meyers