Good day, everyone, and welcome to the Oracle Corporation 4th Quarter Fiscal Year 2010 Conference Call. As a reminder, today's conference is being recorded. At this time, I would like to introduce Ken Bond, Vice President of Investor Relations, Oracle. Please go ahead, sir.
Thank you, operator, and good afternoon, everyone, and welcome to Oracle's Q4 fiscal year 2010 earnings conference call. I'm Ken Bond, Vice President, Investor Relations. And with us on the call today are Chief Executive Officer, Larry Ellison President, Safra Katz President, Charles Phillips and Chief Financial Officer, Jeff Epstein. As a reminder, today's discussion will include forward looking statements, including predictions, expectations, estimates or other information that might be considered forward looking. While these forward looking statements represent our current judgment on what the future holds, statements are also subject to risks and uncertainties that may cause actual results to differ materially from statements being made today.
Throughout today's discussion, we will attempt to present some important factors relating to our business, which may potentially affect those forward looking statements. We encourage you to review our most recent reports on Forms 10 ks and 10 Q and any applicable amendments for a complete discussion of these factors and other risks that may affect our future results or the market price of our stock. As a result, we caution you against placing undue reliance on these forward looking statements, which reflect our opinion only as of today. As a reminder, we are not obligating ourselves to revise or publicly release any revisions to these forward looking statements in light of new information or future events. A copy of the press release and financial tables, which includes a GAAP to non GAAP reconciliation and other supplementary financial information can be viewed and downloaded from our Investor Relations website.
We'll begin the call with a few prepared remarks before taking questions from the audience. And with that, I'd like to turn the call over to Jeff Epstein for his opening remarks. Jeff?
Thank you, Ken. Good afternoon everyone and thank you for joining us. I will review our non GAAP financial results focusing on U. S. Dollar growth rates unless otherwise stated.
This quarter, foreign exchange rates were not much of a factor in our overall results compared to our guidance of a 3% benefit to new license revenue and a 4% benefit to total revenue. Even with the currency tailwind being less than anticipated, we were at the high end of our guidance range for total revenue and we beat our guidance ranges for new license revenue and EPS with record earnings per share this quarter. On a constant dollar basis, we beat our guidance ranges for new license revenue, total revenue and earnings per share. In short, Q4 was an excellent quarter for Oracle. In the 4th quarter, new software license revenues were 3,100,000,000 dollars up 14%.
The Americas grew 28%, EMEA was down 3% in U. S. Dollars and up 4% in constant dollars and Asia was up 15%. Our results continue to underscore the strength, balance and diversity of our business and the quarter was not dependent on any unusually large deals. License revenues were $2,300,000,000 up 18% as the Americas grew 34%.
EMEA was down 1% in U. S. Dollars and up 6% in constant dollars and Asia was up 19%. Applications new license revenues were $855,000,000 up 6% from last year. The Americas grew 16%, EMEA was down 7% and Asia was up 2%.
Our software license updates and product support revenues were $3,500,000,000 up 13% from last year. Customer support attachment renewal rates continue at near record levels. Revenues from our hardware systems products were $1,200,000,000 while revenues from hardware systems support were $688,000,000 Our services revenues were $1,100,000,000 up 4% as we continue to manage this business to profitable margins. Our total revenues were $9,600,000,000 up 40% from last year. Non GAAP operating income was $4,400,000,000 up 26%.
The non GAAP operating margin was 46% for the quarter. Our tax rate for the 4th quarter was 7.3% as we saw some one time benefits to our tax rate. Our Q4 non GAAP earnings per share were $0.60 $0.04 above the high end of our EPS guidance range of $0.52 to $0.56 Earnings per share were up 30% from last year. In Q4, we repurchased 10,000,000 shares at an average price of $24.94 per share for a total of $250,000,000 For the full year, we repurchased 43,300,000 shares at an average price of $22.94 per share for a total of $993,000,000 As we have previously discussed, the rate of our stock buyback will fluctuate each quarter, taking into account alternative uses for our cash and our stock price. Now, turning briefly to fiscal 20 10 full year results, new software license revenues were 7,500,000,000 up 6% for the year.
The Americas were up 15%, EMEA down 5% and Asia grew 4%. Technology new license revenues were $5,400,000,000 up 6%, while applications new license revenues were $2,100,000,000 also up 6%. Software license updates and product support revenues totaled $13,200,000,000 up 10%. Our total revenues were $27,000,000,000 up 15%. Non GAAP operating income was 12 point 5 $5,000,000,000 up 15% and non GAAP operating margin was 46%.
Fiscal 20 10 non GAAP earnings per share were $1.67 up 16% from last year. Turning to the balance sheet, we have $18,500,000,000 in cash and investments. Our days sales outstanding improved again to 53 days compared to 58 days last year and is a testament to the quality of our receivables, the quality of our customers and the effectiveness of our collection efforts. Finally, we generated $8,500,000,000 in free cash flow during the last four quarters, up 9% from last year. Now, I'll turn the call over to Saffron.
Thanks, Jeff. I'll briefly comment on our non GAAP results for Q4. I'll then review guidance for Q1 and turn the call over to Larry. Obviously, we're very pleased with our Q4 results and with our outstanding performance throughout the year. Our business is extremely healthy with substantial strength in with growth of 18%, including 34% growth in the Americas.
Our applications business was also strong with 5% growth over the last 12 months on a constant dollar basis versus a negative 24% for SAPs for most recent quarters. Sun Heart Aware Systems revenue came in well, taking into account the fact that we've already ended Sun's reselling of other companies' products, which had historically accounted for 100 of 1,000,000 of dollars a year in sales, this quarter we saw sales growth for Sun Hardware Products. In addition, our estimate for the Sun business contribution to operating income comes in at over 400,000,000 dollars for our 1st full quarter after the merger. This compares with a loss in SUNS quarter ending June of last year when SUNS was an independent company. Now to get to that number, we've done some allocations for the quarter and because a lot of our back office and software R and D and software sales operations have already been integrated with Oracle's pre merger teams.
Now in the coming quarter, some of the expense estimates may really be too difficult to make, but we will break out the revenues and the segregated expenses whenever possible for the remainder of this year. Clearly, we continue to expect SUNS contribution to meet or exceed $1,500,000,000 for non GAAP operating income in fiscal 20 11 $2,000,000,000 in fiscal 2012. We've also made excellent progress with our supply chain efficiency efforts as the non GAAP gross margins for systems was 46%, much, much higher than the 33% we reported last quarter. And as a reminder, SUNS product gross margin, which included software margins was 38% last year. In addition to our strong top line performance, we delivered very strong operating margins.
With Sun included for the full quarter, our operating margin was 46%, substantially higher than our peers, including IBM and SAP. Our 46% operating margin remains much higher than SAP's even though we are also selling hardware. Fiscal 2010 again demonstrates the strength of our diversified portfolio of enterprise products, the breadth and loyalty of our huge customer base and the strength of our operating model. The fact is we have a lot of company specific momentum. We really executed well throughout the year and exceeded our own expectations quarter after quarter.
Now before I turn to guidance for the upcoming year, let me just remind everyone that our plans for Sun is based on a more profit aware model. As we said a number of times, we are no longer selling the effect of changing the sales mix from systems where some lost money to value added systems where SUNS differentiation is clear to our customers. These changes are allowing us to form a baseline for our hardware revenues and profitability at a level from which they can grow. So let's get to the guidance. And we do believe that the guidance I'm giving today is conservative.
I want to emphasize that our pipelines are very strong in both software and hardware. For the coming quarter, assuming the and a negative 3% effect on total revenue growth rates. With that, our guidance for Q1 is as follows. New software license revenue growth is expected to range from 4% to 14% in constant currency and 2% to 12% at at doesn't include the hardware support revenues. Total revenue growth on a non GAAP basis is expected to range from 44% to 48% in constant currency and 41% to 45% in current exchange rates.
On a GAAP basis, we expect total revenue from 42% to 46% in constant currency and 39% to 43% at current exchange rate. Non GAAP EPS is expected to be $0.36 to $0.38 in constant currency, up from $0.30 last year and from $0.35 to $0.37 assuming current exchange rates. GAAP EPS for the Q1 is expected to be $0.18 to $0.19 assuming constant currency and $0.17 to $0.18 using current exchange rate. This guidance assumes a GAAP tax rate of 33.5 percent and a non GAAP tax rate of 28.5 Of course, it may end up being different. And lastly, the Board again declared a dividend of $0.05 per share.
With that, I'll turn it over to Larry for his comments.
Thank you, Safra. When we introduced the Exadata database machine, it really was focused on data warehousing and our primary competitors were companies like Teradata and Netezza. When we introduced version 2 of our Exadata database machine in partnership with Sun and then we bought Sun, we really focused not simply on data warehousing performance, but also on online transaction processing. And our current version of the Sun Exadata Database machine substantially outperforms IBM's fastest computer in both data warehouses and transaction processing. As a result, in our previous quarter in Q4, some of IBM's largest customers began buying Exadata machines rather than big IBM
servers.
And the 2011 Exadata pipeline continues to grow and is now approaching $1,000,000,000 making Exadata the fastest growing new product in Oracle's history. Now back to Q4. Again, I said the competition has really shifted from companies like Teradata and Nattiza to big IBM machines. And the Q4 results bore that out. We beat IBM 30 times in Q4, we beat Teradata 9 times in Q4 and we beat Netezza 7 times in Q4.
And we sold the Exadata machine into some of IBM's largest and bluest accounts, including Bank of America, Car4, the 2nd largest retailer in the world behind Walmart and Thomson Reuters. I'll turn it over to Charles who'll give you a broader picture of how our other products did in Q4. Charles?
Thanks, Larry. Really had good teamwork across all the account execs byproduct family. It was really a good quarter as you can see. North and Latin America were strong results. They exceeded plan as they they have all year long.
EMEA in particular did a great job of delivering results against a tough comparison, especially in the context of the change in the UK government, financial Spain, while integrating an acquisition. So with all those headwinds, they delivered good results and Japan saw a rebound from a rough to the beginning of the year. What I'm seeing in the field right now is we have many more touch points with our accounts. So our visibility and understanding of customer requirements has significantly improved. And right now, almost any decision they make in the data center could potentially involve Oracle now.
So we have deployed a cadre of technical advisors that we call client architects that essentially act as dedicated CTOs our large customers who want to stay tightly aligned with Oracle strategy. And these client architects are more in demand as we become important to our customers and they advise these CIOs on how to invest and shape their architectures in concert with Oracle's investments. We're improving the attach rate on deals to drag along multiple products up and down the stack and we should continue to get better as the products get more integrated. We also saw partners in particular the systems integrators and even some of the hardware companies make a concerted effort to reinvigorate their partnerships post the Sun acquisitions, which may be counterintuitive, but I think they see the momentum in the market and want to align themselves accordingly. It's also reflected in the amount of companies signing up as sponsors for Oracle OpenWorld by the way.
So product comments, Fusion Middleware 11 gs, gs, upgrades to 11 gs from 10 gs are off to a faster pace. Keep in mind that we already had most of the customer base on 10 gs, 88% were on 10 gs and now they're moving faster than the 10 gs customers move. We have several new options around 11 gs, which means about 70% of the installed base is a candidate for add on product modules once they upgrade. WebCenter within the Fusion Middle World Suite did well in the quarter. Just wanted to point that out because with enterprise support and content management under that product we replaced SharePoint at Airbus and McAfee.
Also wanted to note that one of the recent acquisitions Golden Gate, which is the leader in data replication across heterogeneous databases got off to extremely bad start with wins at CERN and other large companies. But more importantly, it's getting us into accounts who are using non Oracle databases since they're replicating across databases. During the quarter, we released Enterprise Linux version 5.5. We now have over 5,000 Linux customers on our Enterprise Linux, over 400 added in the quarter. We're making investments around Oracle VM, our virtualization product, working on ways to leverage virtualization across our entire product line.
Just one small example, we're working on an Oracle VM machine. This is SunServer with an integrated network switch storage away, Oracle VM, VM Manager VM templates preconfigured and are ready to deploy GRAT. So we can package this technology in ways that most people can't add a lot of value and our competitors are trying to mimic it right now. We also released Enterprise Manager 11 gs in the quarter. That's our systems management product.
That's a milestone release because first to manage applications down to storage, which is kind of what we're been talking about for quite a while, but the single management platform to monitor that entire stack. In the applications area, we had a very strategic and large win at Merck across multiple pillars. It also included health sciences products from the vertical in that GBU. And in CRM, I've talked about ADP in the past as they expanded their CRM footprint with both on premise and on demand CRM where their standard there now. Agile PLM, we had a large win at Foxconn, a large contract manufacturer that makes the iPhone.
Although they're using an SAP back end, they're using Agile now for product lifecycle management. So our edge applications continue to do extremely well in SAP accounts. And then in Financial Services, we had a good win with Mantis and management and anti money laundering solutions at P&C Financial Services Group. And we won 2 large banks in China with a FlexCube core banking platform and they're working with us to build out the localizations, which is important for future wins. And lastly, just give let me give you a sense of the types of hardware purchases on the Sun, Spark that we're seeing momentum there as you saw in the numbers types of companies that are committing to the M Series or the T Series, International Paper, Thomson Reuters, Amtrak, Cummins, GMG, Carter and Gamble, Qualcomm, eBay, PayPal on this quarter and that's just a small sampling.
And with that, I'll turn it back over.
Operator, I think we'll be ready to begin the questions now.
And we'll take our first question from Heather Bellini with ISI Group.
Good afternoon, everybody. Safra, I was wondering if you could share with us your views on Europe and what you're seeing with sales cycles in that region now versus say a few months ago? And I guess in particular your view on whether or not you're starting to see this impact deal signings? Thanks.
Well, it's really a question for Charles. I mean, we actually were very, very strong in Europe. By the way, they had a pretty tough compare actually because they had a reasonably good Q4 last year. And so far, we're actually out to a very good start. But there's no question that the U.
K. Government and a number of our big customers have been impacted by different things in Europe. But we have so many products and we have such diversity
in our
European base and that things have been going very well for us so far. Charles, you want to comment on that? No, I think we summed it up. Thank you.
Next question. We'll go next
to Adam Holt with Morgan Stanley.
The operating margins were obviously terrific in the quarter. You beat consensus by over $400,000,000 Safra, I believe you talked about the gross margins in the hardware business. Where else did you see the key contributors to the margin upside in the quarter? And as we look into next year, do you feel like we've reset at a higher level heading into fiscal 2011?
Well, of course, you all have become accustomed to the fact that we sell a lot more software, but we don't increase our cost structure very, very much. And Sun and our own business generated a lot of new software sales. I mean, so that on its face ignoring the hardware would lead to higher to improved operating margins. And then we have the hardware business, which is clearly we're making it at the gross margin line, we're making it at the operating expense line, making it all around. But this is a scale business.
And the more we grow in scale as a software business and frankly, the more we grow in scale as a hardware business, our operating margins will improve. You just need to look at our history for the past few years and it shows up sort of all around hardware and software business.
Terrific. Thank you.
We'll go next to John DiFucci with JPMorgan.
Saffir, you've been very clear about focusing on profit as it pertains to Sun and actually as it pertains to any business. But looking forward into this business as on the hardware top line, can you give us a little more general guidance on how we should be thinking about it going forward? I mean coming into this quarter, obviously, it's your end of your fiscal year and it was close to what Sun's fiscal year would have been and perhaps maybe the hardware business looked pretty good and perhaps there could have been some pent up demand too to show that. But I'm just wondering if we should be given the guidance for next quarter and looking forward, if we should be just maybe not too aggressive on the top line for the hardware business going forward?
Well, there's no question we need to get some sort of a baseline for the hardware business, but you need to understand that we are also selling differentiated products. We have a lot of new differentiated products, both out and coming out. And Exadata is one of those kinds of products. So, obviously, I'm not going to recommend you get ahead of my guidance, but it's the reason I'm giving you guidance. It's what we actually think we're going to do.
But we will need a year to understand the amount of seasonality that there is in the hardware business. We don't have full visibility. And as I did mention, we are not we are no longer reselling other some products that were other people's products, which SUN sold for 100 of 1,000,000 of dollars a year. And so that has to be we need a year without that for you to get a baseline. But in general, we feel that we already see it.
Customers are buying a lot of hardware. Now they are very, very loyal to technology that they love. And now that they know that it has a future and that we are investing an enormous amount in continuing these lines and in enhancing them, they are much more comfortable making those investments again. So as you can see, sequentially, we're not projecting a very large decline, which in our software business, we usually are between Q4 and Q1, because we have some hardware specific momentum we're very upbeat about. But we will need a year to understand pipelines and conversion rates, etcetera, and see how we come out as well as to be able to measure some of these new products and how they're taking off.
Thanks. If I might, just a quick follow-up for Larry to that and the hardware business. The Exadata product, both OLAP and OLTP solutions and people are used to buying analytics in an appliance form function. I'm just curious how much are you starting to see customers get as far as their comfort level of buying transaction processing solutions and in buying Exadata?
Well, I think as long as we can demonstrate the Exadata Version 2 is a relatively new product. As long as we can demonstrate in benchmarks that
we're a lot faster than
IBM's fastest computer, the fastest computer. The appliance is particularly attractive in OLTP because since OLTP is mission critical and all these pieces fit together, our architecture is not only faster than IBM's, it's much more reliable. Exadata has a fault tolerant architecture. There is no single point of failure, which is much more important in OLTP than it is in data warehousing. So, we're faster and more reliable.
Now, we have to, you know, people are skeptical about any new product. They buy a couple of machines and they test them and then they put them into production and if we're successful, then they start making standardization decisions. But I think the combination of much better performance, the fact that it's appliance where all the pieces are fit together, engineered to fit together and tested together, and the fact that it's a fault tolerant architecture gives us a huge advantage over IBM, the OLTP space. So again, each customer will take their time in trying it and then making a decision, but we're making really good progress. I also want to add on to what Safra said, She forecast hardware at $1,000,000,000 for Q1.
The guidance is the guidance. However, you should know our plan is to dramatically grow the Sun sales organization and strongly grow the Sun business. Your earlier question, are we just focused on profitability? We are focused on growing the Sun business and growing it rapidly. We're being very conservative in our guidance as we should be, but we are adding a lot of salespeople.
Maybe Charles can comment on just how quickly, it takes them a while to get productive, but maybe Charles can comment on just how quickly we are adding distribution capacity to the Sun sales organization, so we can grow that business.
As you probably know, we made a big public announcement that we're hiring and so that generated a lot of momentum. But what I've been impressed with is the quality of the people who are coming because they're excited about the differentiated message. They see what Sun is doing. They see exit data. They see the investment that we're making.
So the quality of senior people who want to come here from our competitors has surprised me and we're signing them up as we speak and now that the quarters over with we have a little more time to focus it, we're ramping up but the pipeline is there, people to hire.
Yes, we're going to more than double this on sales force.
Okay, thanks. That's very helpful. Nice job.
Thank you. Next question please.
We'll go next to Sarah Friar with Goldman Sachs.
Terrific. Thanks for taking my questions. Just first on some maintenance, where it feels as if you still have a lot of
low hanging fruit, now that you've
got a quarter under your belt. What are you seeing in terms of trends in pricing on maintenance and then attach rates? And then I have a very quick follow-up afterwards if I may.
Sarah, you have kind of a funny line, so we couldn't quite hear you. But you're asking about sun support, support on sun?
Yes, exactly. Sun maintenance, so what you're seeing in terms of pricing ability and then attach rates, which I think were quite weak before you took on Sun?
Yes. We are well, we announced new pricing, which was very, very well received. Gartner wrote an excellent report on it and customers have sort of been on support from Sun have come to Sun. It's been on support from Sun have come to Sun, have come back to Sun and the attach rates are increasing. So there's definitely value to Sun support for hardware and software and customers are recognizing that and attach rates are increasing.
And we expect it to increase even further.
Right. And then if I could a follow-up, just very big picture, you're clearly one of the big tech bellwethers, your views on the environment holds a lot of weight. Are you seeing any change on the margin, not even just Europe specific, but just on the margin in terms of customers' willingness to spend today versus a month ago versus maybe 2 months ago, because clearly the market is saying that they're very concerned right now?
Yes. For us, as I said before, it's very hard for us to parse the line to make a line between Oracle's company specific momentum and the overall market. Our customers are very, very sort of happy right now and they're showing that by investing in more and more of our products. This is sort of a consistent message. We got the exact same question a quarter ago and a quarter ago.
And there's no question that the quarter started off very well for us already. And I think that we're not economists here. We just sell software and hardware. So far our customers are making very significant investments and there are a lot of customers looking at our products right now very, very seriously and making buying decisions literally as we speak. So I don't know if anybody else wants to take a stab at the economy question, but things are going well here guys, which I think is clearly obvious.
Okay. Well, the perspective is great. Thank you.
We'll take our next question from Joel Fishbein with Lazard Capital Markets.
Hi. Can you please give us some more color around the change or the elimination of the Sun channel and how that has the impacted or the impact it's having on the operating margin line?
Well, yes, let me correct that. We didn't eliminate the Sun channel at all. So that's not exactly what we're doing. What we said was over time there would be a gradual shift to more direct to the mix of business that Oracle normally sees. So pre SUN anywhere from 40% to 43% normally in a given quarter of our business goes through indirect them directly.
So there will be a shift toward our number over time, but nothing dramatic in 1 quarter, nothing to disrupt the business. So that shift has started, but again, it will take some time.
And regarding the margins, obviously, this will lead actually higher revenues for the company. And because of our really massive scale, it will actually also lead revenues will increase a lot, expenses will not increase as much, which means that overall operating margins will improve consistent with really the leveraging the massive scale we have here.
So the takeaway is that it really wasn't an impact in this quarter because it's too early to impact. Is that the way to look at it?
So it's That's fair. Those partners are adding value and we want the ones that are adding value, we want to continue to work with for many years.
Thank you.
We'll take our last question from Phil Winslow with Credit Suisse.
Yes, great quarter. Just a question on the database and unaware line.
Phil, we can't hear you.
Can you guys hear me now?
Not really. Phil?
Hey, can you guys hear me now?
Phil?
Phil, we're not getting a connection. We'll try back next time.
And that will conclude the question and answer session. I'd now like to turn it back over to Ken Bond for any additional or closing remarks.
Thank you, operator. A telephonic replay of this conference call will be available for 24 hours. The replay number is 888-203 1112 or 719-457-0820 and the passcode is 85 33,249. Also webcast replay will be available through the close of market on July 1 and can be found on the Investor Relations website. Please call the Investor Relations department with any follow-up questions from this call and we look forward to speaking to you.
Thank you all for joining us on today's conference call. And with that, I'll turn the call back to the operator for closing.
And again, that will conclude today's call. We do appreciate everyone's participation.