5) Growth Fuels Margins, And Margins Fuel R&D: Oracle's building for the future. Anybody who's followed this business even casually knows that Oracle, under the highly disciplined leadership of Catz, had demonstrated the ability to generate phenomenal operating margins of 50% or more from its traditional software business.
But with the Sun acquisition, many observers were expecting those operating margins to plummet due to Sun's money-losing ways in particular and the lower-margin nature of the hardware business in general.
Again, Oracle is defying its critics, and of all of the comments made by Oracle executives in during the earnings call, I found this one from Catz to be the most striking—and the one that Oracle's competitors could well find most daunting:
"In addition to our strong top-line performance, we also delivered very strong operating margins," Catz said. "With Sun included for the full quarter, our operating margin was 44%, substantially higher than our peers. Actually, our margins are 1500 basis points higher than SAP's operating margins even though we are also selling hardware. At this rate we could be back at pre-Sun operating margins quite quickly" (boldface emphasis added).
Even if Oracle's not quite able to match its pre-Sun operating margins (but I wouldn't bet against them), the broader point is that the company will have huge purchasing power for acquisitions that can further its objective to become the #1 high-end systems company in the world. And the company is broadening its appetite from software and hardware companies out to chip companies to help begin the optimization and engineering process at the very beginning of the stack—a capability that today only IBM has.
6) Cross-Selling And Up-Selling: Oracle leverages its huge customer base. Three key points here: First, Ellison said that a big part of his confidence in Exadata's future revenue potential comes from the fact that many customers are moving from tire-kicking to check-writing: "The close rates are definitely improving and I think you are going to see a significant jump in Exadata sales going from Q2 to Q3, Ellison said.
"So we're watching—this pipeline grew very, very rapidly. And again, there's a lot of buzz and a lot of interest. But because it's a new product, people were running a lot of benchmarks, they were trying it, they'd buy a small machine first. And we are beginning to see some significant re-buys, and a lot more customers translating their interest into purchases. And I think we're gonna sell a lot more Exadata in Q3 than in Q2."
Second, Ellison has often said that a huge benefit of Oracle's industry-specific applications is that those customers become prospects for Oracle's other products. So imagine the vertical-market prospecting power that Oracle is taking on as that business more than doubles:
"Our industry-focused businesses were up triple digits," Hurd told the analysts.
Third, Hurd also said that Oracle's huge installed bases of database customers and middleware customers will provide equally huge opportunities for Exadata and Exalogic: "We've got 295,000 database customers that can run their Oracle workloads orders of magnitudes faster by deploying Exadata," Hurd said. "Exadata customers are experiencing immediate performance increase measured in multiples, not percentages. Customers are seeing 15 to 50 times the improvement with Exadata."
And, once again, the Exadata impact is seen in paving the way for Exalogic: "We are seeing a lot of enthusiasm at the end of the quarter as we begin to build a backlog for Exalogic, which will be available next quarter in both Intel and Sparc versions. There are 150,000 middleware customers, many of them using our market-leading WebLogic app server—and ultimately, are prospects for Exalogic."
7) The Power Of Integrated Suites: Does Fusion have an advantage? "With Release 11 of our middleware, everything has now been rewritten," Ellison said. "All the pieces operate off a single metadata library. It's a much better user experience, because you can attach our entire middleware suite with a single file. Versus if you take IBM WebSphere, where IBM WebSphere is literally dozens if not more than a hundred separate products, all with separate patching technologies.
"So we think the fact that we have an integrated suite gives us a huge competitive advantage over IBM, and we're winning share there very, very rapidly. We'd expect the advantage we have in database you will see over the next five years also moving to middleware."
8) Applications Business Grew 20%--And new Fusion apps are coming. Oracle's planning a slow rollout of its long-delayed Fusion apps this year, but Ellison was bullish about the prospects those products will have in the context of Oracle's overall strategy: