Oracle - Earnings Call - Q3 2012

Transcript

Speaker 6

Good day, everyone, and welcome to today's Oracle Corporation Quarterly Conference Call. 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.

Speaker 0

Thank you, Amber. Good afternoon, everyone, and welcome to Oracle's third quarter, fiscal year 2012 earnings conference call. A copy of the press release and financial tables, which include a GAAP to non-GAAP reconciliation and other supplemental financial information, can be viewed and downloaded from our Investor Relations website. On the call today are Chief Executive Officer Larry Ellison, President and CFO Safra Catz, and President Mark Hurd. As a reminder, today's discussion will include forward-looking statements, including predictions, expectations, estimates, or other information that might be considered forward-looking. Throughout today's discussion, we will present some important factors relating to our business, which may potentially affect those forward-looking statements. These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from statements made today.

As a result, we caution you against placing undue reliance on these forward-looking statements, and we encourage you to review our most recent reports, including our 10-K 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. Finally, we are not obligating ourselves to revise our results or publicly release any revisions to these forward-looking statements in light of new information or future events. Before taking questions, we'll begin with a few prepared remarks. With that, I'll turn the call over to Safra.

Speaker 1

Thanks, Ken. As you can see, we had a very solid quarter as new software license revenue was up about 7% to $2.4 billion, and that's really on top of the enormous 29% increase last year. As I said last quarter, all we really needed to do was focus on our execution, and that we did. We exceeded our forecast for new license guidance. We met our forecast for total revenue, and we beat the high end of our EPS guidance. Technology new license revenues were $1.7 billion, up 10% in constant currency, 9% in U.S. dollars. Applications were $658 million, up 3% in constant currency and U.S. dollars. As you recall, we saw 34% growth in apps last year and 21% the year before that.

We're very pleased as we're just starting to see the early benefits of Fusion Apps, and we've just closed on RightNow and will close on Taleo in April. Our license revenue for applications is now 66% higher than it was just three years ago as compared to SAP, which is about 32% higher. Geographically, results were very good as we saw double-digit license growth in the Americas and Asia-Pacific, with new license growth of 11% in constant currency and U.S. dollars for the Americas and 11% in Japan in constant currency, 13% in U.S. dollars. EMEA, not surprisingly, given the environment, was essentially flat. Don't forget that a year ago, EMEA reported 19% new license revenue and 47% growth in applications. Once again, the quarter wasn't dependent on any large deals. Software license update and product support revenues were $4.1 billion, up 8%.

Supported patch rates and software renewal rates continue at the usual very high level. Hardware systems revenue was $869 million for the quarter due to the continued reduction in some of our defocused product lines. Hardware gross margins were 51% for the quarter. Total revenue for the quarter was $9.1 billion, up 4% in constant currency, 3% in U.S. dollars. We're extremely pleased with our non-GAAP operating income of $4.2 billion, up 8% as we expanded Q3 margins to match a prior record level of 46.4%. This now includes a hardware business. With operating margins essentially now back at pre-Sun levels, I'm sure you want to know where margins go from here. While I'm not providing specific guidance, we continue to see ample leverage in our business model.

The non-GAAP tax rate for the quarter was 22.5%, and the GAAP tax rate was 20.7%, both of which were below my guidance as a result primarily of an increase in income in subsidiaries in countries with lower rates than the United States. EPS for the quarter grew 15% to $0.62 on a non-GAAP basis. Operating cash flow increased to a record $13.5 billion over the last four quarters, while free cash flow grew 36% to a record $13 billion. We have nearly $30 billion in cash and marketable securities. This is after paying for our acquisitions and our $1.7 billion buyback executed in the quarter where we bought back 59.1 million shares. The board declared a dividend of $0.06 per share. Now to guidance. This guidance builds on a great fourth quarter last year, which had new license up 19%, non-GAAP EPS up 25%, and GAAP EPS up 34%.

Regardless, the fundamentals of the business remain strong with pipelines growing significantly. With currency bouncing around, I'm going to give you constant currency guidance. As a convenience for you, I am going to give you where U.S. dollar rates are in the past few days. That actually currently is a negative 3% on license growth and total revenue. I have to remind you the rates remain extremely volatile. Here goes with the guidance. New software license revenue growth is expected to range from 1% up to 11% up in constant currency. Subtracting the three points, you get to negative 2% to 8% in U.S. dollars currently. The hardware business has not turned out to be very seasonal, in fact. I'm going to give my guidance really sequentially.

What we're seeing for next quarter is hardware revenues a little more, basically the low end of my range would be somewhere about where it is this past quarter Q3 to potentially as much as $100 to $110 million above where we closed this past quarter. That would be somewhere between, I guess, $870, let's say, to as high as $980. Total revenue growth on a non-GAAP basis is expected to range from 1% to 5% in constant currency. Subtracting the three points, it would be negative 2% to 2% in U.S. dollars. On a GAAP basis, we expect total revenue growth from 1%. Non-GAAP EPS is expected, excuse me. On a GAAP basis, we expect total revenue growth basically in the same range as non-GAAP. Non-GAAP EPS is expected to be somewhere between $0.78 and $0.83 in constant currency.

That would be up from $0.75 last year or $0.76 to $0.81 in reported dollars. GAAP EPS is expected to be $0.65 to $0.70 in constant currency. That would be up from $0.62 last year and $0.62 to $0.67 in U.S. dollars. This guidance assumes a GAAP tax rate of 25% and a non-GAAP rate of 24.5%. That would be up from a little over 23%, I think, last year. With that, I will turn it over to Larry for comments.

Speaker 4

OK. Thanks, Safra. In this current quarter, in Q4, after a long period of testing with hundreds of early adopter customers, Oracle's cloud platform and applications will be generally available to all customers in Q4. The Oracle Cloud includes database and Java platform services, as well as Fusion CRM, HCM, and financials cloud applications, all for a simple monthly rental fee. We've named our cloud the Oracle Secure Cloud because we believe that we've addressed our customers' most serious concern about cloud computing, namely security. The computers that are connected to Oracle Secure Cloud run in multiple Oracle data centers and optionally on computers connected to the Oracle Secure Cloud that are installed in the customer's data center behind that customer's secure firewalls.

This is especially important to large customers who want the simplicity and convenience of cloud computing but are unwilling to accept the security risks inherent in multi-tenant public internet clouds. Salesforce.com does not offer this kind of security in their cloud. This is a key advantage for us going forward. By far, our biggest application competitor is SAP, not Salesforce.com. SAP does not even offer CRM, HCM, and financial applications in the cloud to their large customers. Applications sold to big businesses are the bulk of SAP's revenue. If you're a large customer that wants to run financial applications in the cloud, SAP does not have a product for you, but we do. Six years ago, we made the decision to write Fusion CRM, HCM, and financial applications for the cloud. It will take years for SAP to catch up.

In the meantime, the growing popularity of cloud computing gives us a great opportunity to replace SAP as the number one applications company in the world. On to you, Mark.

Speaker 5

Thanks, Larry. Hey, I just have a couple of quick comments before I turn it back to Ken. Another strong Exadata quarter across triple-digit growth. Seven of eight quarters now with growth over 100%, and the one we didn't was 95%. Great Exadata wins at Sony, NTT, and Samsung. Exalogic bookings quadrupled from last year. Our newest product, Exalytics, has the fastest ramp of any engineered system that we've released. It went GA late in the quarter. It may very well be the strongest value proposition that Oracle has released yet, and we are not seeing competition anywhere. Going into Q4, we have a record pipeline for engineered systems, and we expect that we will materially surpass all past booking records and that our bookings for the year will be roughly in line with our original forecast.

We talked a little bit about the cloud, and Safra mentioned RightNow closing the quarter. She also mentioned we expect to close Taleo in April. Once closed, our existing SaaS business will exit the year at nearly a $1 billion run rate. By the way, it's a similar number to our planned exit for the year for engineered systems hardware. Software support was up sequentially and up annually as attached to renewal rates remain very strong. Hardware support attach rates continue to improve from pre-acquisition levels, and we expect to see these go higher over time. Lastly, we added another 1,000 sales and pre-sale people this quarter, and we did this while bringing operating margins back to record levels. Simply put, we are shifting our headcount mix to people who work on developing or selling great technology.

We have great products, and with the additional sales resources, we are going to drive more organic growth. With that, I'll turn it back to Ken.

Speaker 0

Thanks, Mark. Amber, we'll start the Q&A session, please.

Speaker 6

Thank you. If you would like to ask a question, please signal by pressing the star key followed by the digit one on your telephone keypad. If you're using a speaker phone, please make sure your mute function is turned off to allow your signal to reach our equipment. Once again, please press star one to ask a question, and we'll pause for just a moment to assemble the queue. We'll go first to Jason Maynard with Wells Fargo.

Speaker 2

Hey, guys. Congratulations. The bounce back in your Q3 results definitely makes it look like Q2 is, if you will, just a bad game and perhaps not necessarily a sign of other issues. There's definitely still some investor question, though, about things like SAP HANA replacing the transactional database. How does Oracle capture share of big data growth, the shift to cloud? My question specifically, what do you think changed from Q2 to Q3, and do you think any of these perceived threats are actually hurting your business, and how do you assess the potential opportunity to grow Oracle revenue? Thank you.

Speaker 1

OK. I'll just talk on the first part of your question. You know, it's clear by these numbers that Q2 is actually an aberration. In fact, as you see, sequential growth between Q2 and Q3 is the highest it's been in years, which would be a sign that something was off, frankly, in Q2. Q2 and Q3 are usually very, very similar growth, similar quarters that sequentially, I think, new license was up like 16%. It really does show that what we told you last quarter and that the quarter itself was truly an aberration. We feel very good about really all our product lines. Maybe, Mark and Larry, you'd like to just comment specifically on competitive situations and otherwise.

Speaker 4

OK. Let me start. Two things. You mentioned HANA, and you mentioned the cloud. I'm going to just discuss it, just talk about SAP in general. SAP has yet, again, six years ago, we made the decision to rewrite our ERP and CRM suite for the cloud. Made that decision six years ago. We called it Fusion. SAP called it Confusion. We think it was the right decision six years ago. As cloud computing has grown in popularity, grown in popularity, grown in popularity, we think about, thank God, that we're sitting here with a complete ERP, CRM, HCM suite of applications rewritten from scratch, ground up rewritten from scratch for the cloud. SAP has yet to start. SAP hasn't even started. If you want to buy financials for the cloud, you can buy it, and you're a large company, you can't buy it from SAP.

You can buy it from Oracle. We think that's a very big deal. If you're looking for a complete suite in the cloud, you can get that from Oracle. You can't get that from SAP. That's their core business. Their core business is not the database business, HANA. Let's go on to HANA. SAP decided not to focus on applications, but instead, they decided, hey, let's go compete with Oracle in the database business, and let's build this HANA in-memory system. The last time SAP decided to compete with us in technology, core technology, they had this thing called NetWeaver. I remember getting all the same questions about NetWeaver that I'm now getting about HANA. I got SAP is going in the middleware business. They're a great company, great technology. This NetWeaver thing sounds fantastic. At the time, Oracle was not a leader in middleware.

The leader in middleware at the time was IBM. What's happened? Since the NetWeaver assault on Oracle, Oracle has moved into the number one position, passing IBM, where they are the number one middleware company in the world. By the way, we had a great middleware quarter. We're the number one middleware company in the world, and NetWeaver isn't on the chart. It's vanished. When SAP, and specifically Hasso Plattner, said they're going to build this in-memory database system and compete with Oracle, I said, God, get me the name of that pharmacist. They must be on drugs. That was interpreted by Hasso as saying Larry Ellison doesn't believe in in-memory databases. Quite the contrary. We've been working on in-memory databases for the last 10 years. We have the world-leading in-memory database. It's called x10.

That x10 product is the foundation of our Exalytics system, which is our direct competitor with the HANA appliance. The reason I wanted to get the name of this pharmacist was not because I don't believe in in-memory databases. I don't believe SAP is equipped to compete with us in a database business when we've been working on it for 10 years. This is arguably our core competency, database management. SAP is going to beat us in database management with HANA? I'm going to turn it over to Mark to discuss all of the HANA losses we've experienced since the introduction of that SAP product. Mark?

Speaker 5

I don't have anything to report. We've listened.

Speaker 4

What about Nom Springs Water?

Speaker 5

No.

Speaker 4

OK.

Speaker 5

Bringing decorum back for a second, I think we have, listen, we've been looking out in the market. We hear all the rhetoric and the noise. I don't want to make it sound like we're in denial that there's stuff out there, people talking. My only problem with it, Jason, is I just can't find them. I just can't find them. I can't find buyers. I had one report, and you know this. We've got a very large field organization. I asked them, send me all the data on real competitive deals, and I'm willing to stay up all night reading them. The good thing is I got to bed on time. I'm not trying to tell you. We're very vigilant. I don't want to say we dismiss it.

Right now, for us, the products that we've got, and I meant what I said earlier, Exalytics is going into a market, as we see it, with very little competition.

Speaker 4

Yeah. We have hundreds of Exalytics sales. We can't find, and again, Exalytics is the competitor with SAP HANA, their HANA appliance. One of the nice things about Exalytics is you plug it in, and your existing Hyperion EPM system runs faster. Your existing Oracle BI runs faster. With HANA, one of the problems is you plug in HANA, and then you start to write programs because it's not compatible with anything. Exalytics is. That's one huge advantage. Forget the huge advantage. Let's say you write a custom program for Exalytics and a custom program for HANA. I believe we will run dramatically faster. We should. I mean, we've been working on this in-memory database technology for more than a decade. They just brought this thing out of the lab. I don't think it's a serious threat to us at all.

Speaker 5

One thing I would say, Jason, that I do like is the fact that they're talking about engineered systems and the fact that it's going to play, I believe, a bigger and bigger role in core computing in IT.

Speaker 4

IBM too.

Speaker 5

IBM too. I think you see them coming out saying the same thing. I think what happens when you take a leadership position, as we've had, and I talked about this before, it reminds me of when I was at Teradata years ago. We had an architecture that was different from everybody. One of the best things that happened to us was IBM coming out with an architecture very similar to ours, if you will, validating the approach that we were bringing to market. Very similar here to have these companies, these big companies now come to market and say, yes, we have engineered systems too. I think it's great. It validates the market for what we've already brought to market and continue to improve and enhance.

Speaker 4

One last comment on HANA to just emphasize. HANA does not compete with the Oracle Database. I know on their roadmap, they say that eventually HANA will compete with the Oracle Database. They'll never make it that far down the road because what HANA does right now, it competes with Exalytics. It's an in-memory query accelerator is what it is. It competes with Exalytics, and it cannot, it will not successfully compete with Exalytics, and it will never even begin to compete with the Oracle Database. I don't want to spend time now explaining all the recovery issues, all the security issues, how difficult it would be for us, for them, for anybody to take this in-memory technology and make it a legitimate competitor to any database, let alone the Oracle Database.

Speaker 0

Thank you. Next question, please.

Speaker 6

will go next to Adam Holt with Morgan Stanley.

Speaker 7

Hi. Thank you and congratulations on getting back on track with a real nice quarter. My question, I think, is for Mark. It has to do with the changes on the sales organization. If my numbers are right, you grew your sales headcount by about 17% net in the first half and also made some tweaks to the selling plans. Another 1,000 this quarter. Could you maybe give us your thoughts on the philosophy around the growth and changes in the sales organization and where you think you are in terms of ramping your capacity?

Speaker 5

I think we've done a lot of it. To be very frank, we set a plan in motion to accelerate our hiring. As you've seen, we tried to do it within the context of a very disciplined expense structure. Share expenses for the quarter are roughly flat within the context of the increased sizing in our sales force. As we said last quarter, we're up 1,700. This is additive to that. Just to be clear, this is salespeople and the pre-sale people that support them. It's a combination of both. We have some more hiring to do. I would say we've been very successful in getting done what we've done. We believe we've brought in quality people. We are a very attractive destination to hire to, and we have taken advantage of that. Again, strategically, we're adding more salespeople, but we're also adding more specialized salespeople.

There are salespeople very focused on the products that they represent. They're experts at the products they represent. We're going to take advantage of that and now force a push, higher productivity out of those people that we've hired. We think we have a lot of gas in the tank to drive organic growth given the hiring we've done.

Speaker 7

Great. Thank you.

Speaker 5

Thank you.

Speaker 6

We will go next to Cash Rankin with Merrill Lynch.

Speaker 7

Hi. Thank you very much. We hear a lot of big data as an industry trend. I just wanted to get to the engineered systems. Mark, I think you talked about Exalogic quadrupling the bookings on a year-over-year basis. I'm wondering if you could give us some color on how Exadata is doing at this point in time. I think you sound pretty excited about Exalytics. I'm just wondering how we should think about the ramp for Exalytics. What kind of a pipeline do you have, and what is the initial uptake looking like within your OBI customer base for the Exalytics product? That's it for me. Thank you.

Speaker 5

OK. I appreciate the, it sounds like almost a nine-part question. I'll do my best, Cash, to try to get at it. I tried to say this. I think around here, we're just really excited about Exalytics. The Exalytics product was GA'd a couple of weeks before the end of the quarter. Yeah, a couple of weeks before the end of the quarter. We got it out. Frankly, we started to sell it, frankly, just pre-GA. We had so much interest in it, and we had very strong bookings in that last 10-day period. We're off and running in the U.S. We're off and running in Europe. We're ramping up now in Asia. We're aligning that to our BI sales force. As Larry described, the ability for us to take existing Oracle BI applications, and they just run.

Compared to this other thing that was talked about earlier where you buy it and then you start programming on it, this is a completely different value proposition than the thing that was being asked about earlier. Exalogic has ramped. It quadrupled, as I described in my comments earlier. It is having tremendous success in that SOA area, as well as with our applications. The ability for it to now plug in Oracle applications and in some cases run 4 and 5x faster than you're running Oracle applications before you deployed Exalogic into that architecture. Exadata has continued to ramp. Again, we saw another one of these gains where we doubled. As I talked about over the last several quarters, we've done that continually every quarter. I expect a very, very strong Exadata quarter in Q4 as well.

Speaker 7

Mark, Exadata doubled on a year-over-year basis.

Speaker 5

Yes.

Speaker 7

Yep.

Speaker 5

OK. Great. Thank you very much.

Speaker 0

Thanks, Safra. Next question, please.

Speaker 6

We'll go next to Philip Winslow with Credit Suisse.

Speaker 3

Hey, thanks, guys, and congrats on a good quarter. Just two quick questions. First to Safra and Mark. The applications business in the U.S. really bounced back very strongly this quarter and performed quite well internationally, given what you mentioned being just tough comps year over year. What's driving that sustained growth in applications? Could you just also comment on just the early feedback you're getting on Fusion Apps? The second one to Larry. Some of your competitors are making a pretty big deal about just "pure object-oriented development," and how they believe this not only puts Oracle Fusion Apps, but also, frankly, just the Oracle Database at a disadvantage. In fact, some have gone so far to say that there's no need for a database anymore. Could you just give us your perspective on this too? Thanks.

Speaker 1

OK. For us, nothing particular on applications for next quarter. We still remain very bullish. We think we're going to be very good. I think you'll be very happy by the end of Q4. On the software side, of course, it's our seasonally very, very strong quarter. We had extremely high database applications growth last Q4, so we have a very tough compare. It was 22% in applications last year in Q4 in recorded growth rates. We're very bullish about applications in Q4 for us, very.

Speaker 5

Before Larry gets into the other question, I would say in Fusion, we are ramping HCM now. HCM has been in the market. We have references. We've got our salespeople trained, deployed. We're aggressively at the HCM market. I mentioned the acquisition of RightNow, which is now fully integrated into Oracle. We have released our sales product within CRM. We're ramping that similarly to what we did HCM probably four to five months ago. We are starting to win a material amount of the deals in HCM. I would say we're very encouraged by our progress in HCM over the last three or four months. Very good progress to report there.

Speaker 3

OK. The question is object-oriented programming. Does object-oriented programming eliminate the need for a database? Object-oriented programming has been around a very, very long time. It was invented kind of at Xerox PARC with the Alto. It was invented in the late 1970s, early 1980s. This is 30 years later, and there are still databases. Oracle Fusion Applications is written in 100% Java and HTML5. I would say that's consistent, and it runs on the Oracle Database. Salesforce.com, Java and the Oracle Database. NetSuite, Java and the Oracle Database. Taleo, Java and the Oracle Database. RightNow, for their large customers, it's all the Oracle Database. The only cloud company I know, the only cloud company I know that decided to forego having a database, thinks that database technology isn't necessary anymore, the only one on the planet that I know of is Workday. Workday doesn't use a database.

They use their own technology. Let me tell you one thing. It's very hard to write reports, ad hoc reports, queries, and certain things on an underlying object database. I don't want to go into all of the details. By the way, the Oracle Database has full support for object-oriented programming. The Oracle Database ceased being a pure relational database many, many years ago. We're an object database. We're an XML database. We support all different kinds of media and all different types of, you know, we support video. We support free text, unstructured data, as well as structured data, objects, as well as relations. We support all sorts of different data types. The fact that Workday built its own database is, I think, one of the two fundamental mistakes that they made. The other fundamental mistake is their UI is all Flash. It's all Flash UI.

It's Adobe Flash, which is not supported on the iPad and is not supported on the iPhone. They have begun the process to rewrite completely their UI. They said they built some special stuff for iPad, iPhone. Eventually, they're going to have to move away from Flash to HTML5, I believe. Otherwise, they're going to have to maintain two separate UIs, one for iPads and iPhones and the other for Android and personal computers, which makes no sense. That was one mistake. A much worse mistake was the fact that they are alone of all the modern cloud companies to think that they can do without a database. I think it's a fundamental mistake, and it's going to create all sorts of problems for them down the road. They're basically, this small company is basically going to have to build all of their own database technology.

I mean, they need recovery, they need query processing, they need ad hoc reporting, they need all of these things. They're going to have to build out that tool set themselves rather than relying on us, like Salesforce.com does, rather than relying on us, like NetSuite does, rather than relying on us, like SuccessFactors does and SAP does. They all rely on us. Workday, they're going to rely on themselves. It's a small company making two architectural mistakes right out of the box.

Speaker 0

Next question, please.

Speaker 6

We'll go next to John DiFucci with JPMorgan.

Speaker 7

Thank you. Mark, I have a question to follow up to Cash's question. We actually continue to give.

Speaker 5

Are there follow-ups to earlier? Is that a rule that we allow?

Speaker 6

It's time and subject.

Speaker 5

OK, all right.

Speaker 7

OK. I have a part 11 to Cash's 10-part question.

Speaker 5

OK.

Speaker 7

Sorry, Cash. We continue to hear of improved traction in the field for Exadata specifically. Actually, we're hearing of some early excitement around Exalytics and even some T4 traction. Obviously, the bleed-off of the commodity hardware continues, and this more than is offsetting the traction of the other products on the top line. I guess the question is, when are we going to see this reverse? I realize the timing has been difficult to predict, but when does the commodity hardware business stabilize? I just have a quick follow-up to that when you're done.

Speaker 5

Can I have a follow-up to that? OK. I'm going to repeat what I said. I'm going to interrupt Mark and say that next year, our overall hardware business will be a growth story. Exalogic, Exadata, Exalytics will have scaled to the point where it's big enough and rapid growth to more than offset the decline in some of the commodity lines, like the x86 line, that we just don't care about. What we care about is where we enrich the hardware with our own IP, namely software silicon. T4 is doing very well. I mean, it's doing extremely well. We've got to refresh the rest of the SPARC line. I think when we do that, we're going to be in much better shape. That's going to happen around the end of this calendar year, refreshing the remainder of the high end of the SPARC line.

Also, we've stopped reselling LSI Logic disks. We don't care about that, and that's in decline. Instead, we're selling our own ZFS technology. We sold over 1,000 ZFS systems this last quarter, up, I think, from 200 a year ago. 5X. For 5X. Now it's a small number, but it's very, very important. This competes directly with NetApp. We bought a company called Pillar, and their sales are up. This is SAN, and we're getting a new Pillar. We intend to be competitive in storage with our own IP. We intend to be competitive in servers with our own IP. Next fiscal year, our hardware business should be a growth story.

Speaker 6

We will see.

Speaker 5

It will be. Excuse me. The CFO said it will be. I think.

Speaker 0

John, you've got the story right, what you described.

Speaker 5

I just add to Larry's point. I'd add ZFS. We've got a franchise tape business that we're focused on. We're refreshing the SPARC line. The good news is the T4 is superb. The bad news is the price performance of the T4 is so superb that it's a very attractive value proposition that actually brings lower revenue in per unit. It's an exciting product that's really new and fresh into the SPARC base. It's a very positive thing from that perspective. I think we've got good traction on the Exa products. We'll be focused on our original forecast, as I described earlier, on the Exa side. Next year is a growth story for us.

Speaker 7

If I could just clarify, because Larry, I think you said at the end of this calendar year, after that's when you'll start to see growth. You said next fiscal year. For the year, we'll see growth. We'll actually start to see on a quarterly basis at the end of the calendar year or thereabouts, we'll start to see that turn to growth.

Speaker 4

I think we hope to get there before that. That would be the second quarter. We hope we get there before that. For the next fiscal year, there are no guarantees, but we're pretty confident next fiscal year, this is a growth story. By the way, it's a top-line growth story, which means it's a pretty spectacular bottom-line growth story.

Speaker 7

Got it. Got it. Mark, just to clarify, you made a statement during prepared remarks.

Speaker 5

I don't think you're going to be able to insult Cash with his multi-part question anymore. Go ahead.

Speaker 7

I love cash. This is a question. Mark, you said engineered systems bookings will be in line with original forecasts. Just so there's no confusion around that, can you clarify what that means as far as original forecasts for engineered systems bookings?

Speaker 5

Sure. You know, we talked about getting to the billion-dollar run rate. We will do that. Certainly be right around there. We talked aspirationally about the ability to triple the sales, and as we said, that was an aspirational goal. We'll be in the ballpark. We still got a shot. We got Q4, and we're still on track to try to get that done. I know we had some discussion in the last call where there were people showing up with various numbers. We have not changed our view of this from the beginning. Our view has been this is an exciting story. Unfortunately, around here, we've gotten used to it. I think sometimes we forget just how exciting it is to have products like this in your product line that grow like this.

We still got a shot to make that aspirational goal for the year, and we're going to drive hard in Q4 to get that done.

Speaker 7

OK, great. That's great to hear. Thanks a lot, everybody.

Speaker 5

Thank you.

Speaker 6

We'll go next to Brent Thill with UBS.

Speaker 7

Thanks. A question for Larry on the applications business/cloud. The street has some concerns that you're in the transition from the old to new. As it relates to Fusion Applications, how do you think about reaching a tipping point in referenceability? I think you have roughly 70,000 application customers. In the last update we heard, you mentioned a couple hundred customers are deploying. Can you just give us your view? I had a quick follow-up for Safra.

Speaker 5

The nice thing about Fusion Applications, it's not a rip and replace story. You can deploy parts of the Fusion Suite in concert with the applications you have on-premise, the classics. If you have a business suite, you can connect that to our Salesforce Automation Suite, or you can connect that to our HCM Suite in the cloud. It's not a matter of you having to take out everything you currently have and replace it with cloud computing. You can do this gradually. That's what we see our customers doing, in fact. A lot of the customers that are running Fusion Applications today in production also have a lot of our on-premise applications. We think we can manage this transition gracefully because the technology allows for that graceful transition, the gradual introduction of cloud applications displacing a portion of the e-business suite and another portion of the e-business suite.

In three, four, five steps, you can get entirely to the cloud if that's what you want to do. Some of our customers are quite happy with the on-premise stuff. We will be offering the full complement of Fusion Applications to all of our customers in Q4. We expect adoption broadly in our base. This could be a multi-step process, especially for these large customers.

Speaker 7

OK. Real quick, just for Safra on the Q4 license guide, the street's original reaction was it felt fairly conservative. Is that just because of tough comps, or is there something else that you're seeing that's giving you some reservation?

Speaker 1

No. You know, I lived through Q3 with you all, sorry, Q2 with you all, and I didn't enjoy that. You know, I'm looking to close rates and just liking Q3 a lot more than I liked Q2. I'd like to like Q4. I'm not seeing anything negative or otherwise. I am guiding to a number that I think is in that range, using somewhat conservative close rates for Q4. OK? Do you understand me?

Speaker 7

Thank you. Yep.

Speaker 6

We do have time for one more question. We'll go next to Brendan Barnacle with Pacific Crest Securities.

Speaker 7

Thanks so much for fitting me in. Good afternoon. There was a nice re-acceleration in technology licenses during the quarter, returning to 10% constant currency growth for the first time this fiscal year. Anything in particular driving that re-acceleration? How sustainable do you think it is going forward? Thanks a lot.

Speaker 4

The Exadata, Exalogic, Exalytics require you not only buy the hardware, but there are software components as well. One of the things we love about this business, engineered systems, is not only does it put us in the high-margin hardware business, it also makes our software even more competitive than it was before. We're seeing it's helping accelerate our database business. It's going to be very, very interesting to look at our BI business and how Exalytics is going to help our BI business, how Exalogic helps our middleware business and our application business. There are great synergies with our engineered systems. Again, we talk about it enabling us to be very competitive in the hardware business. That is true. It's also making us more competitive in the software business, especially technology.

Speaker 7

Great, thanks so much.

Speaker 6

That does conclude today's question and answer session. At this time, I would like to turn the conference back over to Ken Bond for any additional or closing remarks.

Speaker 0

Thank you, operator. A telephonic replay of this conference call will be available for 24 hours. Dial-in information can be found in the press release issued earlier today. Please call the Investor Relations Department with any follow-up questions from this call. We look forward to speaking with you. Thank you all for joining us on today's conference call. I'll turn the call back to the operator for closing.

Speaker 6

Thank you. That does conclude our conference. You may now disconnect.