Highlights From ORCL's Q1 Conference Call: New Software License Revenue up 17% to $1.5 Billion

Oracle Corp (NASDAQ: ORCL) reported Q1 EPS of $0.48, $0.01 better than the analyst estimate of $0.47. Revenue for the quarter came in at $8.4 billion versus the consensus estimate of $8.36 billion. Shares are currently up 7.62% today.

Highlights From ORCL's Q1 Conference Call:

• (Safra Ada Catz) Our Q1 results against our June guidance made clear that we continue to have a lot of company specific momentum.
  
• Obviously we're pleased with the results; new software license revenue was up 17% to $1.5 billion, building off exceptional growth of 25% in Q1 of last year.
  
• We continue to see broad-based geographic and product momentum as technology and license revenues were up 14% to $1.1 billion and applications grew 23% this quarter to $428 million with Europe particularly strong. Geographically, the quarter was balanced with new license growing 10% in the Americas, 20% in APAC and 25% in EMEA.
  
• Software license update and product support revenues were up 16% to $4 billion. Support attach and renewal rates continue at the usual high levels.
  
• Hardware system revenue was $1 billion for the quarter. This quarter hardware gross margins were 54%, significantly higher than the 48% last year as we continue to shift the product mix to more profitable products and engineered systems and as we continue to improve our supply chain efficiency.
  
• Total revenues for the quarter was $8.4 billion, up 11% from last year.
  
• Operating cash flow increased to a record $12.8 billion over the last four quarters, with operating cash flow increasing this quarter to $5.4 billion, up $1.6 billion from $3.8 billion in Q1 of last year.
  
• Free cash flow grew 46% to a record $12.3 billion over the last four quarters. We now have nearly $32 billion in cash and marketable securities.
  
• (Guidance) Total revenue growth on a non-GAAP basis is expected to range from 4% to 8%. On a GAAP basis, we expect total revenue growth of 5% to 9%. Non-GAAP EPS is expected to be somewhere between $0.56 and $0.58, up from $0.51 last year. GAAP EPS is expected to be $0.44 to $0.46. This guidance assumes a GAAP and non-GAAP tax rate of 27%.
  
• (Lawrence J. Ellison) In Q1, the transition away from selling low margin commodity servers to selling high margin engineered systems increased both the gross margins and the overall profitability of our hardware business. In Q2, we will accelerate that trend when we introduce four brand new engineered systems products.
  
• Each of these new engineered systems optimally combines Oracle software, Oracle silicon and Oracle hardware to deliver extreme high performance, fault tolerant, high reliability and improved ease of use. The largest of these new engineered systems is the fault tolerant SPARC Supercluster, featuring our new spark T4 microprocessor that runs up to five times faster than the T3 microprocessor it replaces.
  
• Our new feature rich Solaris 11 operating system and the ultra-high performance Exadata flash disk storage system. The SPARC Supercluster runs the Oracle database applications faster and less expensively than anything available from IBM. Thus, we expect that many customers in our large SPARC Solaris base will be upgrading to SPARC Supercluster.
  
• (Mark V. Hurd) Just a few points on the quarter. You heard about 17% growth. That comes on top of 25% last year. It was primarily organic, broad-based, across tech and apps, both growing double digits.
  
• Performance across geographies was balanced. One number worth noting is apps in Europe was up over 60%, 6-0%. Second, Exadata, Exalogic unit growth was nearly triple digits broad-based across industries and geography and we sold systems to more than 150 unique customers, of which 100 were new Exadata or Exalogic.
  
• Third, our industry focused solutions are increasing in relevance to customers and that shows up in our 17% growth but our industry-focused solutions again grew faster than Oracle did in license growth, so again, good help from the industry-focused solutions.
  
• In addition to Exadata and Exalogic growth, our SPARC server products grew this quarter. We had growth in the core SPARC product line.
  
• Last, we are continuing to hire. We added 350 people to the sales organization in Q1.
  
• (Q&A) My question is for Mark on the hardware business. It's a two part question. First, where do you think you are in turning this business around and what gives you confidence in the forward look there? And secondly, along that line, how conservative do you think the hardware guidance is for the second quarter? Thank you. (A) Well I probably, Adam, won't get into a lot of conservatism or optimism. The guidance is the guidance. I think second point, I think we're really not as focused, to be very frank, on the hardware growth rate as we are on the point that I just made of growing the right things in the product line, the things that are attributable to long-term profitability, long-term positioning with a customer, long-term positioning in the data center. And I'll try to give you an example. If you take that core server product line that we grew in the quarter, the SPARC server product line; if you took an M-Series product, just imagine, Adam, that we sold $100 million worth of M-Series products, and these are rough numbers. My guess over five years, our profitability on that is roughly $100 million when you include the attach and the support and the service. Just the same if we sold $100 million of x86 with no intellectual property, my guess our profitability would probably be less than a fifth of that. And I only bring that up to give you the polarization of the impact of intellectual property, the alignment of that intellectual property to a solution, the alignment of that to support, the ability for us to do things for the customer and the eventual profitability for the company. So what we're focused on are the solutions like what Larry described are coming out Exadata, Exalogic, the core SPARC product line and that's where we're focused. And in that context, I think we are turning around the business. I think you are seeing some momentum. And if you see the market share charts, they tend to show you the facts that we are gaining share in that core part of the product line.
  
• I was just wondering if you could walk us through the big data opportunity that everyone's been talking about and how you see Oracle participating in this trend and also how you see it impacting Oracle's core database franchise? (A) Well, Hadoop and all of the associated utilities with Hadoop, which is used - they use the term, "Big data," for all of that, is going to be one of the feeder systems to the Oracle database. We have announced interfaces that allow you to take your Hadoop systems and connect them to Oracle systems so you can load your Hadoop data into Oracle. So we think it's going to increase the usage of Oracle. Furthermore, I mentioned we're going to come up with four new engineered systems, one of which is SPARC Supercluster and we're also going to have a big data engineered system that we're going to introduce at Oracle OpenWorld. So we think as more and more data gets computerized, a lot of that data finds its way into an Oracle database and it allows our database business to grow at an accelerated rate.

---

Serious News for Serious Traders! Try StreetInsider.com Premium Free!

---

You May Also Be Interested In

• Oppenheimer Starts Oracle (ORCL) at Perform, 'Improving Fundamentals Offset by a Less Efficient Cash Model'
• First Financial (FFIN) Tops Q1 EPS by 2c
• Oracle and Reka Collaborate to Advance AI Innovation