Earnings Call: Q1 2021

Sep 24, 2020

Good afternoon, everyone. Hope this year, hope you're all safe and including your families in these difficult times. We just like most of you, a lot of you, I think, I'm also working from home for a long time and these are challenging circumstances for everyone. And we hope to overcome this as soon as possible. We as a company, we had a good quarter for Oracle. We see good demand for our cloud products. We see good demand for our ERP, especially in our ERP segment is picking up, including NetSuite. Overall, things are challenging, very challenging, just like for any other company, but we are in good shape to overcome these challenges for the year. So having said that, let me quickly take you through the summary of the numbers for the quarter. Our revenue at 47,000,000,000 629,000,000 yen is essentially flat, growing at 0.3%. And our operating income at $14,536,000,000 is growing at 2%. Thank you. I'm sorry, I always forget that I have to wait for the interpreter. But I will try and be easy on my interpreter. And what's the usual highlight? So I quickly talk about revenue breakdown by business segments. Our cloud license and on premise license for the quarter was JPY 8,137,000,000, which is a decline of 13.2 percent year over year. As you can see, it was a challenging quarter with some of the small and medium enterprises SME in the SME market, especially we saw a little slower uptake of our business, which we hope to sort of get back as the pandemic sort of subsides. Our cloud services and license support revenue at JPY 330,000,000 grew 4.4%, as solid as ever year over year. On our hardware systems revenue at JPY 4,000,000,000 and JPY 3,000,000,000 grew 1.4% for the quarter and our services business at JPY 5,157,000,000,000 grew 0.6%, essentially flat but continues to give us good margins. Now back to Page 1. As you can see from our operating income, we continue to deliver very good margins for the corporation. And I continue to hold my full year forecast guidance at 0% to 3% for my revenue and JPY 3.70 to JPY 3.85 for my EPS. So that's my summary. And with that, I open it up for questions. This is Shrieka san from SMBC Yiguo. Two questions. First question is about license revenues. In the Q1, you mentioned that SME market was particularly slow early week. And you may not be able to project a 3rd quarter, but if second quarter, the situation remains the same, then do you think that this slow or weak momentum will continue? And maybe it is already included in the plan, but my question is about the forecast regarding the license revenue in Q2. Thank you for your question. It is definitely a good question, which bothers us also. Having said that, we did plan for a weaker first half and a stronger second half in our planning process because that we saw that the pandemic would have some effect on our business. So we are watching our current situation for Q2. And I think in Q2, the situation should improve. That's number 1. Number 2, we also see customers who are using this situation, the pandemic situation to actually go for more digitalization. They are moving from legacy systems to being more digital because that's the way to survive in the future. Overall, as you have noted, we will just continue to hold our forecast for the full year. Maybe Q2, there will be a little bit effect of the pandemic, which continues, but we should be recovering soon. Okay. Thank you very much for your response. I understood very well. Moving on to my second question, your cloud service and license support our service and license support remains to be firm. And recently, both in Japan as well as outside of Japan, the demand for EAS, IAS, has been growing. I think that has been the trend. However, Oracle's growth is not that high. So and it seems like your license support looking at previous year, Q2, Q3 was very strong and Q4, although not as much as Q3, but still it was high and it was growing. So maybe we perhaps the cloud growth is rather weak. So if you could give me the breakdown of the license support, the split between EOS and POS and what is the trend? That will be helpful. Thank you. So we at the outset, I must say that we do not split our numbers because there's a lot of these numbers are interchangeable. But I can give you a flavor of our ERs business and why we feel really good about it. We our ERs business is essentially we have been selling database in this market for a very long time. So we have a huge database on premise installed base in the country. So we feel that this installed base that we have for our on premise customers is going to move to our infrastructure as a service. We have already started some of the activity. And we also track our consumption, EAS consumption on a not on a year over year basis, but also on a quarter over quarter basis. Our EAS consumption grows in high double digits every quarter every quarter I mean quarter over quarter, not year over year. On top of that, we also have a lot of custom applications that we are starting to see that are beginning to move to Oracle on our Gen 2 technology. The biggest example of that is Nomura Research Institute, who is investing almost $20,000,000 a year with us to move all of their finance applications to the Oracle Cloud Infrastructure. So the way I see it that we are ready for the market. We have a great product offering and we have momentum on our side. And thirdly, we have our own installed base of customers. It's not unlike Amazon or Microsoft Azure where they have to go out into other installed bases. We have our own customers installed base to move to cloud. Thank you. I hope that answers your question. So I understood that EOS is growing and license support is growing. So is it correct to understand that PAS is not growing or maybe it's negative year on year basis? We don't break between EAS and PAS. So for us, PAS and EAS are the same line because these things are completely interchangeable. I don't have visibility to pass numbers anymore. I we only look at infrastructure as a service, which includes PaaS. This is Tanaga from MBSJ Morgan Stanley. I have one question. I understand you've explained that S and E in your license business is rather slow than due to pandemic. But my intention with Oracle was that Oracle has been strong in enterprise market. And I understand maybe you did not disclose the breakdown, but at a ballpark level, can you give me an idea of the split between enterprise and SME market for you? So our SMB business is primarily driven by our partners. We don't have feet on this we don't have salespeople to touch each and every SMB customer. So our partners basically do dominate that business for us. And hence, I'm so because of the pandemic, a lot of the local SIs were also slow and the demand from the SMBs were also slow. That was leading to this slight weakness in the SMB market. SMB market still constitutes a fair percentage. I will not break down the percentage, but it constitutes a fair share of our business. Now your question on the enterprise business, right? If you look at Q4 last year, we had a solid license number and that was coming on top of FY 2019 Q4, which was even which was also very big. So I basically look at this quarter more. Of course, there is weakness because of pandemic, but I also look at this quarter as a resting quarter or a breathing period for Oracle. If you look at historically, we have these ups and downs in the license business always. So this is just one of those quarters. I don't think I'm reading anything else into the license performance in this quarter. The first question, 2 questions is about advances by customers. It seems that there is a significant jump from May to August. What happens here? And how should we lead the implication to the future revenue? This is advances from customer is also it's a leading indicator for us, as you know. So the jump and it's also cyclical in nature. Some quarters, you will find it lower growth percentages. Others, you'll find it higher. But this is part of it is our advances for our cloud bookings and part of it is our advances for the license support. It's a combination of both of these things. We had a very good Q4 where, as you can see, we booked quite a bit of cloud and also quite a bit of license business. So these advances are pertaining to that. You said Q4? I'm sorry. Yes. Isn't it Q1? It was single time it's saying? No. But the advances actually it's a timing difference of the invoicing. So the business is basically both booked in Q4 and Q1. But what you see is basically the timing difference on the invoicing. That's why these numbers looks like that. The second question is not about TikTok, but about Zoom. So Zoom has a multi country license with Oracle. And in the release of Oracle USA, it has seen a significant revenue increase Q on Q particularly higher. How is it related to the Japanese business? Is there any benefit or no benefit in the Zoom usage level in Japan to Oracle Japan? They are completely driven by the centrally driven by Oracle Corporation. So they have a global contract. So we do not get any credit for Zoom's bookings. However, just let me add one more sentence to it. Zoom is a great reference for Oracle. It's a big success story. It's a very big brand. So we definitely think that in Oracle Japan, we can actually use that win, use the Zoom reference to talk to our Japanese customers, a lot of independent software vendors who are looking for to move their business to the cloud, Oracle offers a great opportunity. So it's the contract by itself may not help us, but it will help our business in Japan.