Oracle Corporation Japan

Thank you. Good afternoon everyone and welcome to Oracle Japan's Second Quarter Fiscal Year 2022 Earnings Conference Call.

Nishio [ph] is the interpreter. Can the interpreter listen to me?

Nishio, can you guys hear me? [Foreign Language]

I can’t hear the interpreter. [Foreign Language]

Should I start again? [Foreign Language]

Okay, sorry about that. Welcome to Oracle Japan Second Quarter Fiscal Year '22 Earnings Conference Call.

We enjoyed another quarter of strong growth in our cloud business. Oracle has a comprehensive product portfolio which consists of platform applications, hardware which can be deployed on cloud environments as well.

We are continuously accelerating our customers' cloud migration and we acquired new logos this quarter. We won some symbolic Fusion ERP customers in various industries, including Panasonic, [indiscernible], Shiseido and Honda Motors.

Our strategic back office, cloud applications grew at a fast pace this quarter, including Fusion Cloud ERP up almost 45%, NetSuite ERP almost 51% and OCI consumption also very, very extremely high, double digits. So let me quickly take you through some of the numbers for the first half of FY '22.

Our total revenue at JPY 102,084 million grows 1.8%. Operating income at JPY 34,079 million increased 3.1%.

And our net income at JPY 23,685 million grew 3.5%. As you can see, we continue to deliver on our top line numbers in the right areas, which includes cloud and also we are able to continue to hold our margins.

A little bit on the segment revenues. Our cloud and on-premise license at 18,025 million yen declined 12.2%.

Please remember this was against the background of a very, very strong Q2 FY '21 last year. Total cloud services and license support at JPY 66,201 million grew 8.7%.

Hardware systems revenue at JPY 84,227 million was down 12.8%. And finally, our services revenue at JPY 10,756 million was flattish at 0.8%.

Overall, we are reasonably happy with the results for first half. We have a very strong pipeline going into second half.

And we will continue to accelerate our cloud business as we go forward. Thank you.

And I look forward to taking some questions now.

[Foreign Language] The first question is from [indiscernible]. This is about contract liabilities.

Like in Q1 and Q2 as well, this contract liabilities is continuing to decrease. If you could share with us the projection going forward, that would be helpful.

Thank you for the question. So this is -- so I think we have to compare the same quarters.

Q4 is a bigger quarter. Generally as we collect, we will see a decline in Q1 and Q2.

That's been the trend. It's more like a seasonal.

[Foreign Language] Next question also from [indiscernible] is about outsourcing. Please share with us the reasons for the increase and also projection going forward.

Basically, a lot of that outsourcing expense is the data center charges that the corporation sends to us. So there was -- as our customers use more and more on the data center, these expenses will sort of go up and there was a little bit of a catch up this quarter.

That is why that expense looks slightly higher.

[Foreign Language] Our next question is from [indiscernible]. Please give me the background of setting up a special advisory committee, and what will be the activities that will be carried out by this committee?

This is basically more like a statutory requirement for -- I think it's a very temporary requirement, which will -- so it's not a permanent committee.

[Foreign Language]

Can we move to the next question?

[Foreign Language] Next is also from [indiscernible] of Citigroup Securities. What is the cloud growth rate?

And what is your forecast going forward of the cloud?

So I had already elaborated that. We are sort of growing extremely high double digits on our cloud.

We see a very strong demand, especially ERP for both Fusion ERP and NetSuite that's going to drive our cloud. And as I've said before, the more we penetrate the ERP market, more it will pull other products with it, including HCM and even CX.

So we are extremely happy with that trajectory. On the technology side, our OCI consumption continues to increase.

Our customers have started moving their production systems. NRI in this quarter actually moved one of their production systems onto OCI.

So we continue to see a very strong trajectory. Just one correction on the special committee.

It is basically to -- I stand to be corrected. It's not a temporary committee.

It's to monitor conflict of interest basically. That's what that special committee is for.

[Foreign Language] Next is a third question from [indiscernible]. Under COVID-19, what was the resellers sales activities in Q2, what was the impact and what is your prediction going forward?

The economic activity seems to be coming back and the reseller activity is also sort of coming back to track slowly. So it's not equal to what the pre-pandemic situation was, at least for us.

I don't know about other companies. So there is a little bit of a gap that we see, but I think it's improving every quarter.

Hopefully, Omicron doesn't spoil the party.

[Foreign Language] This is from [indiscernible] of Mitsubishi UFJ Morgan Stanley. The cloud service and license support was down by 1 billion Q-on-Q.

What was the reason behind that?

So there is -- so we did recognize a lot of revenue from NRI in Q1, which is a seasonal thing. I think we will continue to see that phenomenon in Q1.

And we will -- hopefully, when there are more and more larger customers, all this will even out in different quarters. But primarily, it was a revenue recognition of the NRI contract.

[Foreign Language] The next question is from [indiscernible]. I will translate in Japanese first.

KK, this is from [indiscernible]. Generally speaking, would the Cerner deal open up new opportunities in the Japanese market, or should we look at it as a U.S.

event mostly?

I don't think I can answer that question at this point in time, because it's just been announced yesterday and there are still a lot of things that we have to cover. So I'm unable to answer that at this point.

[Foreign Language] Next is from [indiscernible]. In second quarter, hardware systems was down by 13.9% in terms of revenue.

Please elaborate on the reasons behind it. And also, are there any impact from the shortage of semiconductors?

I think I did mention this in our previous call. There is a little bit of a challenge with the supply chain in hardware.

Having said that, it's a combination of a couple of things, right? One, there is a supply chain challenge.

Two, customers are starting to evaluate whether they want to invest in additional hardware or they want to go to cloud. So it's a combination of those two that had impact in this quarter.

And I think as we move forward, definitely we will see some challenges in that hardware business. However, as you know, our hardware business is not that big.

So we're not worried about it.

[Foreign Language] So the next question is Fusion ERP customers. Why are you able to get major enterprise customers in Japan with Fusion ERP?

So we have been -- we are very excited about what is happening in the ERP space for us in Japan, especially -- globally also and especially since this call is relevant to Japan, I will talk about Japan. Obviously, companies want to move their old on-premise implementation to a new modern ERP system on the cloud.

When you move your ERP or when you move on to SaaS applications, that is the last time you ever do an upgrade to your ERP system. In the past, when you bought on-premise, every few years the vendor will come, whether it's Oracle or SAP, whoever will come in, make -- either the software version changes or there is a new offering that needs to be deployed and then you pay more money on that, go through an elaborate implementation cycle.

So it's a very, very cumbersome process. Straight away when you move to cloud, the biggest advantage is that you keep getting upgrades every quarter.

So the companies are obviously seeing value to migrate to Fusion cloud, because that will be their last upgrade ever. And after that, when the new versions come, you just get it straight away on the pipe and then you can just choose whether to turn it on or not.

So those are -- there are big, big advantages of going to a SaaS ERP system versus an ERP on-premise. And obviously a lot of the SAP customers are starting to realize that.

There is no other viable option in the market available except for Oracle. So as I said, we are very, very -- we are extremely excited at this ERP opportunity for us.

[Foreign Language] On cloud service and license support revenue -- this is a question from [indiscernible]. Software license revenue in four quarters in a row, it has been down year-on-year basis.

So in the second half, is the pipeline richer compared to last year-on-year basis?

So license revenues have been suffering from strong previous year quarters, right? So in comparison with strong previous year quarters, especially this current quarter as well.

And then there was this issue last year with the pandemic situation where some of the decisions were slowed down. As I look into the pipeline for the remainder of the year, we feel very comfortable in terms of what we have and our ability to close those transactions as well.

So I don't sort of see any cause for worry. My guidance continues to hold for the top line.

And obviously we need to make the license quarters to be able to hold that guidance.

[Foreign Language] This is [indiscernible] from Goldman Sachs. So for the past several years, data service software, domestic market share is declining.

So what are the reasons behind it?

Well, I don't know where you guys get your data. The data that we have from neutral people, I think Oracle continues to hold its market share and I don't see -- at least in the data that we have, I don't see any decline in market share.