Oracle Corporation Japan

[Audio Gap] Now I'd like to turn this call over to KK, Senior Vice President, JPAC and Japan's CFO.

Thank you, Nishio-san. Good afternoon, everyone, and welcome to Oracle Japan's Second Quarter and Fiscal Year 2025 Earnings Call.

We had another excellent performance in this Q2 with the growth of our cloud services. The demand is substantial for our cloud business, which has led to an acceleration in revenue and RPO growth.

We have become clearly recognized robust cloud vendor. We continue to expand our customer base for OCI and Fusion even in the Japanese market, which is known to be lagging behind in the adoption of cloud computing.

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There was a rush demand in Q1 and a reactional decline in Q2 in our license business. However, this matter was already factored in the initial guidance.

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We had a lot of marquee cloud customers in various industries, especially financials, information technology, public sector and telecommunication industry.

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Let me give you an example of one of our rising stars in the cloud business, NTT DATA. NTT DATA will deploy Oracle Alloy in its data center to enhance its cloud services for sovereign requirements for Japanese enterprises and organizations and will focus on addressing data sovereignty requirements by expanding a highly secure high SLA cloud service, open canvas and focus on meeting data sovereignty requirements.

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NTT DATA plans to gradually offer more than 150 Oracle Cloud infrastructure services to its customers, including generative AI capabilities while maintaining data in Japan under NTT DATA's operational control.

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Second, University of Tokyo. The University of Tokyo adopts Oracle Fusion Cloud ERP as its financial accounting system to enhance financial management operations.

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In the environment surrounding the University of Tokyo, it is essential to enhance the sophistication of financial management and diversify funding methods as cost of maintaining and strengthening research and educational activities increase year-by-year, putting pressure on the university management.

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By reviewing the current state of operations in line with the fit to standard approach advocated by Oracle, which leverages the standard features of Oracle Cloud ERP and by utilizing advanced technology such as AI to the extent practical, we can create an environment in which finance staff can focus more on productive work and free up faculty time for education and [ reserves ].

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#3, NEC. NEC Will provide NEC's GPRIME administrative management business system package for local governments as a cloud service on Oracle Cloud infrastructure.

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GPRIME has been implemented by approximately 300 organization, and it is a comprehensive business system with functions for financial accounting, general affairs, document management, personnel and payroll and is designed for internal administrative tasks in local public organizations.

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The cloud environment of GPRIME for SaaS administrative management will be migrated to OCI and the service is scheduled to be launched in fiscal 2026 as GPRIME Administrative Management Cloud service.

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This was just to give you a sense of the broad outreach in the market that we have with our different products and services and to underline Oracle's presence in most mission-critical systems, applications and industries.

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Now let me move to the numbers. Total revenue at JPY 125.295 billion, growing 6.7% compared to the previous year, driven by a strong growth in our cloud revenue.

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Cloud services revenue was JPY 28.284 billion, up 18.6% and now represents 23% of the total company's revenues.

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Infrastructure consumption revenues had a very strong momentum, which includes autonomous database.

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Operating income was JPY 41.913 billion increased -- and increasing 9.4%.

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Net income at JPY 29.342 billion, up 10%.

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Total revenue and all 3 margins indicated record high as the second quarter. With regard to my guidance throughout for fiscal year 2025, it has not changed.

I'm retaining the same guidance.

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As you can see, these numbers show strong cloud demand, and we hope to continue the momentum into the remaining part of fiscal 2025. Thank you very much.

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[Foreign Language] So the first question is from Tsuruo-san of Citigroup. So first of all, there was a price increase and there was a last-minute demand coming in Q1.

And therefore, reactionary decline was observed in Q2. But do you think this reactionary decline has been over in Q2, and you will not experience this from there onwards?

So firstly, yes, the reactionary decline in Q2 is more or less over. I don't see that rolling into Q3 and Q4.

When I gave my guidance for the full year -- total revenue for full year, we had factored a certain license number for the year, and we do hope to hit that license number. So overall, for the full year, our estimates are not going to change.

So I don't split my guidance product-wise. So I will not be able to answer the second part of your question.

[Foreign Language] So second question from Tsuruo-san. Over -- so within a little less than 2 years, there has been a price hike once again.

So if you could share with me your pricing strategy or price increase strategy going forward. Can we expect that perhaps every other year, there will be a price hike?

It is -- we are a global corporation and a lot of our pricing policies are globally standard as most of the price increases that we saw in Japan in the last 6 to 8 quarters has been driven by the fact that the Japanese yen has declined significantly. So if the yen continues to fall, which I don't think it will.

But if it continues to fall, yes, we may see some more price increases. But in general, we don't knee-jerk -- we don't do any knee-jerk price increases.

There is always a scientific reason behind it. In fact, for -- if you go like 2 years before and then you look at the period before that, we never changed our price for several years.

So this basically depends on obviously, demand and supply and the margins that we make as a company.

[Foreign Language] Tsuruo-san's third question. The adoption of Alloy of NTT DATA and Fujitsu, how much contribution will it make on Oracle's revenue?

Will you be able to share with me the projections going forward?

Firstly, let me briefly explain what Alloy means to us and what it means, let's say, to the Japanese market. Alloy is a very unique offering that we have that Oracle has, which no other hyperscaler can provide.

Basically, using Alloy, our partners can actually incorporate it or integrate it within their data centers and offer Oracle's cloud service in conjunction with their own cloud services seamlessly. So for us, it's a very, very exciting offering in Japan.

And given by the interest that a lot of these system integrators have shown, it definitely will drive revenue for us in the future. We are still -- so we have booked these Alloys.

There are hopefully, some more come in the pipeline in the future. So it's definitely a choice go-to-market for Oracle in the Japanese market.

So we will continue to strengthen our Alloy presence. It will drive significant value for Oracle.

It will also, obviously, drive significant value for our system integrators. And yes, it will drive significant revenue for Oracle.

[Foreign Language] Next question is from SMBC, Mr. Kikuchi.

This is also about Alloy. NTT DATA has adopted Alloy, and I believe that is the biggest scale in the past.

And NTT DATA has announced that it will start to offer their service from the end of calendar year 2025. So is it correct to understand that the number is not included in your first half?

And when will it -- the contribution of this, will it be made starting from the second half of next fiscal year?

I don't basically calculate my forecast based on somebody else's announcements. I have a certain pipeline from various cloud deals and various transactions that we enter into a wide variety of customers.

NTT DATA happens to be one of our customers. So if they are saying it is end of '25, then probably it will not hit me before that.

So I don't know -- I mean, I think it's very logical, right? I mean -- I have -- so for the current year, I'll again go back.

I have forecasted 5% to 9%. That's a mix of all of my products and services.

I don't really want to get into specifics on what I included, what I didn't include. But that should give you a flavor of where we are as a company and the fact that Alloy will contribute significantly to our growth in the future.

That's where I would leave this.

[Foreign Language] So next question is from Tanaka-san of Morgan Stanley, MUFG. The first question is, in the second quarter -- 3 months in the second quarter, gross profit margin has dropped.

Can you give me the background and the reasons why there was a drop?

Okay. Sorry.

So if you look at Q2 stand-alone, because the sales mix is different, it impacts the margins. But if you look at the first half, we are at the same level as previous year, so there's no drop in margin.

I always look at my numbers 4 quarters rolling because that takes care of all the seasonal revenue issues that we have, and you get a better sense of where we are. So I continue to maintain that we will maintain similar levels of margin as we go into the future.

[Foreign Language] Second question from Tanaka-san. In the past 3 months, the number of headcounts increased by 9.

Will this increase continue?

We continue to look at our headcount in terms of deployment. As I've said in the past, we would continue to churn headcount from nonstrategic areas to strategic areas.

And as we grow our revenues, as we expand our market share, we'll definitely need more people on the ground. So yes, we would continue to hire as and when required.

And we are -- as you know, we are a very margin-conscious company. We just don't hire just for the sake of hiring.

We hire when we are required to hire.

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