Oracle Earnings Call Insights: Exa Systems, A Move to Hardware

On Wednesday, Oracle Corporation (NASDAQ:ORCL) reported its fourth quarter earnings and discussed the following topics in its earnings conference call. Here’s what the C-suite revealed.

Exa Systems:

Jason Maynard – Wells Fargo: I’d love to get a little bit more color on this transformation and this selling Exa systems, and to get your perspective in terms of how ready willing is the customer for sort of mainstream adoption and how much more work do you have to do in terms of getting all the product lined up in terms of making that, if you will, that call to mainstream type of push, so we can see Exa becoming even greater percentage of the hardware business?

A Closer Look: Oracle Earnings Cheat Sheet>>

Mark Hurd – President: Okay. Jason, I’ll start, then turn it over to Larry for a couple of comments. As Larry stated, our revenue in engineered systems more than doubled in dollars year-over-year, and that’s with the effect of currency. So, we had material growth in engineered systems over the course of the year, and I think what you saw in Q4 – what we saw in Q4 was some pretty material movements in terms of existing customers buying many more, and these are brand names, Jason, brands names buying now, instead of two or three, buying 10 and 20 to the point that it became as big a number as Larry described, where in the quarter we frankly almost booked as much as we sold all of FY ’11. So, I think, it’s just exactly what you would expect, it’s blocking and tackling for us, getting customers to try the technology. It’s a disruption to their normal path of business. Remember all of our Exa solutions combined servers and Exadata combined storage, as well as software, and I think the ramp you’re seeing is superb, and I think, you should expect to see it again in 2013. With that I’ll turn it over to Larry.

Lawrence J. Ellison – CEO: Yeah. Well, we expect our Exa systems business to approximately double in the current year, and the systems while they are very, very fast right now, they are getting even faster as we adopt Intel’s latest chips, the latest InfiniBand technology, the latest enlarged flash memory systems. So we’re riding that technology curve and improving our Exa systems at a much faster rate than let’s say IBM (NYSE:IBM) is improving its Power systems. So, while we’re faster than IBM Power now that advantage is going to grow over the coming year and coming years. This creates two interesting opportunities one is for us to become the number one player in high end systems. Again, we expect to exit this current year selling about the same unit volume in the Exa line as IBM sells in their Power line and we think at a somewhat higher unit price. So, we think we’ve can come very close to moving to the number one position in high end systems. That is not the end game here. The most interesting part of Exa is not that we just deliver the highest performance of any computer out there. It’s that our cost performance is so attractive. Remember, Exa is built out of commodity x86 machines, or Xeon server parts. Therefore we have the ability to not only achieve very high peak performance, but also achieve industry leading cost performance. So, we think we actually can eat into the commodity business as well as the high end server business. So, we think Exa applies not just to high end computing, but up and down the line which gives us incredible growth potential going forward.

Mark Hurd – President: Jason just to close, when Larry was talking 2x, we are forecasting a big 2013, and again, the doubling effect of engineered systems again, and so Jason, you could feel the momentum. We can certainly see it in our pipeline and we can see it in our results and that Q4 was extremely strong for us.

A Move to Hardware:

Heather Bellini – Goldman Sachs: I had a question following up on Jason. It’s about the Exa product line. This seems to be a first quarter in a while where you guys have been able to really upside surprise and do the high end of the range on the hardware side, and I am just wondering specifically what – even listening to your comments, what specifically changed this quarter? Is it some of the new Exa products ramping? Is it the sales force more comfortable and also kind of do you guys feel now that you have enough history where you are comfortable with the guidance forecast given I think it was probably a little bit harder business to forecast given you didn’t have the history Safra that you did with the license business? So I’m just wondering if you could share some thoughts around that. Thank you.

Lawrence J. Ellison – CEO: It’s really a very, very simple answer. We had a large commodity hardware business that was getting smaller a year ago and a small Exa business that was getting larger. Now, we have a small commodity business getting smaller and a larger, much larger Exa business getting larger. So as we double the Exa business off a much larger base, it’s a much larger percentage of the total. So there are always two things going on – we said there are always two things going on in our product line. The commodity business was in decline and the engineered systems business was ramping very rapidly. Now that the commodity business is small and the engineered business is large a much larger percentage of the total, the impact on the overall number is very positive. Because as Exa doubles that’s going to move the needle dramatically. So we expect the hardware story this current fiscal year to be a growth story, driven largely by Exa. And a growth story not just on the top line but also great margin expansion to go along with it.

Mark Hurd – President: To add to Larry’s comments as it relates to Exa itself, we had a pretty linear progression of improvement throughout the year. We might have a little more in one quarter than the other on that pure linear view but Q4 was really I think, nothing more than the culmination of consistently growing pipeline through the year and even with what we delivered in Q4, we also in Q4 saw our pipeline increase yet again. So I think it really has been all of the things you described its customer familiarity. It’s us getting out showing the technology works. We have so many customers that have now not only tried the product, tested the product, and have bought the product implemented the product. It just all plays together, and I think to Larry’s point we expect a very strong year in Exa in fiscal 2013.

Safra A. Catz – President and CFO: Let me just say one other thing Heather that I don’t know if we mentioned it on this call so far. Is that we do expect hardware numbers to be up for the year. So year-over-year we do expect them to be positive.