Analyst Conference Summary

conference date: September 18, 2008 @ 2:00 PM PT
for quarter ending: August 31, 2008 (1st quarter fiscal 2009)

Forward-looking statements

Overview: Did not do as well in year-over-year comparisons as last quarter did. At lowest end of prior guidance. But beat average analyst expectation for non-GAAP EPS.

Basic data (GAAP) :

Revenues were $5.33 billion, sequentially down 26% from $7.2 billion but up 18% from $4.53 billion year-earlier.

Net income was $1.08 billion, down sequentially 47% from $2.04 billion but up 29% from $840 million year-earlier.

EPS was $0.21, down 46% sequentially from $0.39 but up 31% from $0.16 year-earlier.

Guidance:

Q2 guidance includes strengthening of dollar, resulting in a negative 3 points. Currency moves could change as reported guidance range.

New software license revenues up 5 to 15% y/y in constant currency. Total revenue up 12 to 15% non-GAAP y/y at constant currency. Non-GAAP EPS .35 o .36. GAAP .26 to .27. Assumes 27% tax rate.

Conference Highlights:

Database market share increased to 49%. More customers are buying Fusion middleware suite. Scale of business enables

New software licenses revenue was $1.24 billion, representing 23% of total revenue and up 14% from year-earlier. Software license updates and product support revenue was $2.94 billion, or 55% of revenue, and up 23% from year-earlier. Services revenue was $1.16 billion, or 22% of revenue, and up 9% from year-earlier.

Non-GAAP numbers: net income $1.5 billion, EPS $0.29, up 32%. $2.2 billion operating income. Operating margin 40%, "the highest ever in Q1."

Operating expenses were $3.81 billion, composed of $1.11 billion sales and marketing, $282 million software license updates and product support, $1.03 billion cost of services, $0.71 billion R&D, $0.21 billion general and administrative, $0.41 billion amortization of intangibles, $49 for acquisition related expenses and $14 million for restructuring.

Leaving operating income of $1.52 billion. Interest expense was $159 million. Non-operating income was $82 million. Income tax provision $367 million.

Cash, equivalents and marketable securities ended at $16.2 billion, offset by $10.2 billion in notes payable. 22.7 shares bought back.

BEA contributed $84 million in the quarter. Integration of acquisition was excellent.

Financial services exposures to banks is very low. We believe will have no material impact in Q1.

Application business was down, but that was because it was a tough compare.

Margins consistently improve because of economies of scale. License renewal business has a very high margin and as % of total revenues it continues to grow. Number 1 market share allows us to invest more in engineering and still have a higher margin than competitors. Middleware business is our fastest growing business. We believe we may now be Number 1 in middleware, surpassing IBM. In application space we are number one in CRM. Linux program is going well.

Listed many major customer wins for diverse products.

Q&A:

Will fiscal 2009 be a margin expansion year? We expect to continue to improve margins.

European weakness? There was nothing special about the quarter, it was just a very difficult comparison to Q4.

Deal closings, will they be impacted by financial turbulence? Close rates used for guidance are in line with historical rates. August close rates were in normal range.

What is the priority for customer purchases? You cannot really segment things that way. They need to automate, if they don't do it one quarter, they have to do it the next.

We are seeing a bubble of migrations off of mainframes.

Is applications business pipeline growing? Apps pipeline is very healthy.

Is pricing more competitive? We are not seeing anything new.

Applications vertical markets? Utilities and taxes stood out, retail hit its numbers.

Buybacks vs. M&A? We look at the best use of cash, we are not going to sit around on cash, we are going to buy back stock or make acquisitions that bring in earnings.

Applications business in Q2? We expect it to grow for the year, but it could move around in any particular quarter.

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