Oracle Corporation Japan

Thank you, Nishio-san and good afternoon everyone. Welcome to Oracle Japan’s third quarter of fiscal year 2022 earnings conference call.

I am very sorry to hear that a big earthquake struck in the Northeast prefectures of Miyagi and Fukushima last Wednesday. I would like to extend our heartfelt sympathy to all the people affected by these disasters.

Moving on to our third quarter results, we continue to be very successful in delivering best-in-class products and services for both infrastructure and applications to help our customers in their digital transformation. We won some symbolic cloud customers in various industries, including precision equipment maker in the automotive industry and financial industries.

In terms of specific numbers for the 9 months ending February 28, 2022, total revenue of JPY153,506 million, growing 2.5% compared to previous year driven by a strong growth in our cloud revenue, both applications and infrastructure. Cloud services and license support revenues at JPY99,049 million, was up 8% and now represents 64.5% of the company’s revenues.

Infrastructure consumption revenues were also showing very strong momentum, which includes autonomous database. Our Fusion ERP cloud revenue was up 51.3%.

Our NetSuite ERP cloud revenue was up 42.9%. Operating income at JPY51,557 million increased 3.7%.

Net income was JPY35,793 million, up 4%. Total revenue in all three margins continued to be record high for the 9 months ending February 28, 2022.

So overall, our results for third quarter are completely on track and I will continue to stick with my full year guidance and it will not be changed. So with this, I turn it back to the audience for questions.

[Foreign Language] So the cloud license third quarter revenue was up by 4.01% and is due to a specific large deal.

Sorry, can you just repeat the question?

Yes, certainly. The cloud license third quarter revenue was up by 4.1%.

Is it due to a large – a specific large size deal?

Not surely. So, we have – every quarter we have a mix of large deals and small deals.

So, this is just a regular quarter. The license revenue is – has seasonality and it’s got some unpredictable seasonality as you would have known for the last so many years.

So I cannot pin this on any one big large deal.

[Foreign Language] Were there any slippages from the second quarter, any deferred deals from the second quarter or are there any frontloading of deals into third quarter from third quarter? And can we expect similar situation or similar growth in fourth quarter and onwards?

In every quarter, there are some deals that come from the previous quarter. There are some deals that we try to future quarters.

It’s a very, very normal course of business. There is nothing unusual about Q3 that we should be talking about.

It just happens. There are some deals, which we think, but they don’t – they move to the next quarter.

There are some deals that have come in from the previous quarter that close on this quarter, etcetera, etcetera. So, it’s completely business as usual.

Regarding Q4 or maybe you just say this and then I will talk about Q4.

[Foreign Language]

And your specific question on Q4, no, I don’t sort of generally guide on a quarterly basis, I am returning my revenue guidance on total, but if I look at Q4, we continue to be very happy with our pipeline. Q4 generally is the biggest quarter that we have every year so –about the prospects and the kind of deals that we are looking to close in Q4.

[Foreign Language] So the next question is from Tanaka-san from Mitsubishi UFJ Morgan Stanley. The outsourcing was down Q-on-Q basis, will it not grow from the usage fee of data centers?

It’s a little bit of a catch-up in Q2. So overall I think the outsourcing fee will – should go up over time, but it’s not something that – so it will keep sort of going up and down a little bit as and when the accounting entries come on.

So there is nothing that we can read out of that.

[Foreign Language] So, next question from Tanaka-san is in cloud service and license support Fusion ERP and others grew, but were there any?

No, all of our cloud revenues were going up. So, apps has gone up, our technology cloud, infrastructure cloud has gone up so [Technical Difficulty] for cloud.

[Foreign Language] Next is from Watanabe-san from Mitsui Sumitomo DS Asset Management. As all quarter there is a tendency that the license revenue goes up, but due to the difficulty in procuring hardware, do we need to take into consideration some off to future quarters?

It’s so – so there are – so if you are saying the customer’s ability to procure hardware, then I definitely one of the risks that we are looking or one of the risks that we are looking at, but as I said before when I look at our pipeline, when I look at our forecast for Q4, we feel good for our numbers for Q4.

[Foreign Language] Next is Kaneko-san from BofA. Can we be – I’d like to ask you some insights into the revenue for next fiscal year and onwards?

On-premise license, will there be a lift at some point in time?

I think the way our business is transforming over a period of time, definitely on-premise, revenues will slow down. The trick is I will get customers to adopt our cloud.

The faster we get customers adopting our cloud the chances are that license revenues may slow down. So, it’s a for us that our cloud revenues increase, because that’s where – because that’s the future for the software industry and that’s how we want our consumers to – our customers to consume our cloud and that’s the direction.

[Foreign Language] The next question also from Kaneko-san is that the economic outlook seems to be opaque now, but changes seen in the investment behavior or mindset of the customers?

So, I am assuming the question is regarding pandemic and how the [Technical Difficulty] is that correct?

[Foreign Language] Geopolitical risks.

Yes. So obviously – so you don’t have to contend with the geopolitical situation, whether we, for the last couple of years we have been coping with the pandemic and what we have seen during the pandemic is that customers have accelerated their business transformation, which means that demand for IT services and for the right IT services picking up and will pick up in the future.

Do you want to say this and after that I’ll answer the second part. And regarding the overall political scenario, the geopolitical situation, we really hope that the situation improves globally [Technical Difficulty] it’s a given that a lot of Japanese companies are invested heavily internationally.

So if international demand slows down it affects the Japanese companies theme so that it could eventually have effect on every business, not just Oracle, but every business in Japan as well. But let’s hope we don’t see and hopefully the some of the situation that is evolving in Eastern Europe hopefully will get resolved quickly and we can resume our business normally.

This is [indiscernible] from Citigroup Securities. [indiscernible] has three questions.

Let’s go one by one. First question is about if you could comment on the demand by segment such as manufacturing industry, financial services, public sector and SMEs?

Definitely financial services are a big component of our business. We continue to be very, very strong because of the capabilities that Oracle provides Oracle software database in particular financial services industry.

And so we continue to dominate market share. Manufacturing has been very steady.

Demand has been very steady. I wouldn’t say that we are seeing a lot of uptick in demand via automobiles, because they are sort of doing a lot of research and lot of other activities, which require the power of Oracle, Oracle software and we see some demand.

Well, government has been a big customer for us. We will continue to be a big customer with the digital agency coming and creating policies and becoming the central procurement to work with our digital agency and continue our good business with the government.

[Foreign Language] So next question from [indiscernible] is about the competitive landscape, can you comment on the competition situation with SAP first or OBIC?

This is my favorite topic. So let’s talk about all of these companies separately.

So, OBIC. Firstly, OBIC, OBIC is – it’s been in Japan for several years, it’s a local vendor and it operates in a market segment that primarily we cater to with our NetSuite range of products.

And as I elaborated, we are growing NetSuite close to 50%. So, we have transactions in the mid-market and the lower market segment, where OBIC generally operates.

We have – so even if some of these high end mid-market companies want a global presence, they are better off rather than with a local software vendor. So people are sort of looking at that.

People are looking at the capabilities that NetSuite provides. And so, we are sort of very, very successful vis-à-vis OBIC in that market space although we have just started offering NetSuite in the [Technical Difficulty] there for a very, very long time.

On – I will save SAP for the end. So maybe you want to translate this first.

On SFBC, SFBC basically a very small part of our business, they are obviously a very strong competitor in the customer experience space. But having said that, we still have we have very loyal customer experience customers in acquiring new customers every quarter.

And regarding SAP and I’ve said this before we really don’t consider them as a cloud software sell on-premise on a hosted environment, which is not really cloud. Oracle has literally stopped selling, we sell very minimal on-premise.

Everything we sell is on the cloud. The difference between SAP analysis that if you buy ERP from SAP, you also have to buy infrastructure from either Google or one of the other IS vendors.

And so, the customer ends up paying two different people for the same activity whereas if you buy software from us, you are just paying a single fee, which is the fee for – we have with SAP. The second thing on SAP is that SAP can never upgrade all of their customers together, whereas because we are hosting all of our SaaS customers [Technical Difficulty] and we send upgrades on a quarterly basis to all our customers, can be deployed to all our customers at the same time.

SAP simply doesn’t have this capability. And that’s the reason why we are winning a clean ERP and HCM in the cloud versus SAP in any of our vendors.

In fact, there is no other credible ERP vendor in the world, cloud ERP vendor in the world.

[Foreign Language ] Can we just go back? Kaneko-san’s first question also included – I am sorry – [indiscernible] first question also included SME [Technical Difficulty] some comment for SME segment if possible.

I think so we have been talking about this for the last several quarters and at one point in time, I said that we are seeing some big demand from the SME segment kind of stabilized now. So, we are not it’s – and so we are seeing demand, which is probably lower than the pre-pandemic times.

It’s not yet come back to the pre-pandemic levels. But we have seen demand stabilize in the SME segment.

And I think this is how it will continue and as Japan comes out of the pandemic, which we are seeing signs, the country seems to be opening up and so hopefully the situation will improve.

[Foreign Language] So, thank you. Third question from [indiscernible].

So, based on the above, it seems that Oracle has been successful in getting important deals from [Technical Difficulty] instruments as well as financial service industries. So, what are the – why our customers are selecting Oracle?

Hi. ERP already, right, so what’s our product differentiation, we are the only true cloud ERP vendor in the market.

So, when customers are moving from on-premise to cloud offerings, and clearly there is no other window that can offer our – the kind of capabilities that Oracle offers on the cloud for applications. So, I would say ERP, because we have been [Technical Difficulty] I am just going to broaden that and say, our cloud applications, which include ERP, HCM and our customer experience software.

Now, we are the only vendor by the way that offers all three, all three pillars [Technical Difficulty] CX, SAP, as I have said, we don’t even consider them as a cloud customer. And what they are – this is very, very small in Japan.

So, those are our strings as far as the application. On the technology side, our database continues to dominate the market in on-premise, and I think we will continue to dominate the market in the cloud as well, because we are the fastest and the cheapest cloud by far, both [Technical Difficulty] bodies have certified that there is public information available on all of this.

So, I am not talking because we – our own software engineers are testing it. I am quoting all of this because new [Technical Difficulty] have tested this.

We also offer high performance compute on OCI, which in particular in manufacturing, and we have seen some of the big automobile companies using that to do their crash testing. And so the performance and the results achieved by using OCI for high performance compute are phenomenal and they haven’t seen this on any other cloud.

So, these are some of the small things. And I have talked about NRI, [Technical Difficulty]all of their applications on OCI, which is a huge, huge thing in the Japanese market, because they literally dominate most of the financial services in the Japanese market.

So, these are some [Technical Difficulty].

[Foreign Language] Next is from [indiscernible] of JPMorgan. So, right now what is the [Technical Difficulty] believe at Oracle, Japan, but what’s the situation of your employees coming back to the office and of course the cost that will entail the return to the office cost and offline cost, what is your outlook?

Yes. So, we will very soon be opening offices and we will follow all the local laws and regulations in doing so [Technical Difficulty] with our employees to make sure that they are comfortable coming back to the office.

So, we will not be forcing employees to come or we will not demand [Technical Difficulty] so that’s – that will be our style in the – at least in the foreseeable future. Regarding costs, it doesn’t really affect us so much because facility cost, Technical Difficulty] it’s we were still incurring the similar facility costs.

Yes, we probably save on energy, we save, well, maybe some stationery and we save some other facility expenses, it was not a very big expense for us in Japan. As you all know, it doesn’t – most of the business is concentrated in Tokyo, and some of the bigger cities that we have, so we really didn’t have a very huge travel expense to continue.

So, once it opens, once people start meeting face-to-face, some of those expenses will come back, but it will just be business as usual as before.

[Foreign Language]