Everything I'm reading suggests some degree of modest recovery in 2003. Nobody's saying it's going to be fabulous, but most everything I read supports what we've been thinking: You run through a couple of years of consolidation and then things start picking up again. Our outlook for the third quarter assumes that our close rates don't degrade. Actually, this quarter, our close rates got a little bit better, so we're at a stage where for the last couple of quarters we haven't been surprised on the downside with close rates. And again, that suggests stabilization. So we're assuming that we're in more of a stable environment and we're not going to see a downdraft in the economy or nervousness.
Now, some people talk about the aggressive Oracle sales force. But what does that really mean? As far as I know, the only way a sales force can be aggressive is to offer large discounts. I don't know what would coerce or induce someone to buy other than that. We had been offering discounts historically, and people had been buying in advance of need, building up capacity or inventory of Oracle databases beyond what they needed at a good price. We think they've worked through that inventory and are now coming back for additional capacity.
We've also looked at the pipeline for applications sales, and it seems very strong for the third quarter, but of course, we looked at that very skeptically. We've been disappointed in the past.
If Linux gains traction, it's fabulous for us because it's important that we sell our software on the low-cost Intel hardware platform and our strategy is Linux. We're strong in Windows as well, but Linux is a huge opportunity for us because it's a better data-center operating system than Windows.
Our applications server, for example, has been targeted at Linux machines from Hewlett-Packard and Dell. Our database operates on clusters of low-cost Linux machines. We've bet extremely heavily on Linux. We think Linux is a winner. If it's not, it's a bit of a problem for us. If it is, it's a huge win for us. ... In 25 years at Oracle, I've never seen movement like this toward an operating system. I've never seen anything with this much uptake. We're seeing Linux absolutely go over the moon.
Part of the problem with the application business is that sometimes people get a great deal on the software and spend five to 10 times more installing it and an unknown fortune running it every day. So we think the next-generation application business won't be, "Here's my software. Use it, I dare you," but rather, "Here's my software. This is how long it will take and what it will cost you for me to install it, and this is what it will cost for me to run it every day or help you run it every day." So we're looking at not only quoting total cost of ownership and saying, "Gee, we're cheaper"; we're actually willing to prove it by giving you a price quote and saying, "We'll sell it to you, we'll implement it, and we'll run it."
Almost two-thirds of our customers have either completed the 11i upgrade or are in the midst of it. We have not had a large campaign to sell additional 11i modules into that installed base, but we're preparing to start that right now.
Our federal business was very good, but in fact some large deals came in just after the quarter closed. The federal business will continue to be one of our strong suits going forward.
There's tremendous interest in our Collaboration Suite versus Microsoft Exchange Server, albeit it's very early on since we've announced that product. But I don't think we've ever announced a new product or a service that's garnered as much interest as Collaboration Suite.
Larry Ellison is chairman and CEO of Oracle. These comments were taken from a Dec. 18 conference call with financial analysts.