Oracle Q3 2024 Earnings Call Transcript

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March 11, 2024

Key Takeaways

  • Oracle’s OCI Infrastructure Cloud Services revenue jumped 49% YoY, with OCI consumption up 63%, positioning OCI as the largest driver of overall revenue acceleration.
  • Total cloud revenue (SaaS and IaaS) grew 26% excluding Cerner and, for the first time, surpassed total license support revenue, reflecting strong demand for cloud offerings.
  • Software license revenues fell 3% YoY, and Cerner remains a drag on growth—revenue rose 7% including Cerner versus 9% excluding it.
  • Cerner’s migration onto OCI is complete, yielding significant cost savings, enhanced security, and enabling rapid innovation with new AI-centric healthcare applications updated on a three-month cadence.
  • Oracle is expanding its multi-cloud and sovereign cloud footprint—partnering with Microsoft Azure for Oracle Database, launching dedicated and “alloy” regions, and securing government and GSI alliances worldwide.
AI Generated. May Contain Errors.
Earnings Conference Call
Oracle Q3 2024
00:00 / 00:00

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Operator

Good afternoon. My name is Krista, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Oracle Corporation third quarter fiscal year 2024 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during that time, simply press star, followed by the number one on your telephone keypad. If you would like to withdraw your question again, press star one. Thank you. I would now like to turn the conference over to Ken Bond, Senior Vice President, Investor Relations. Mr. Bond, you may begin your conference.

Ken Bond
Ken Bond
SVP of Investor Relations at Oracle

Thank you, Krista. Good afternoon, everyone, and welcome to Oracle's third quarter fiscal year 2024 earnings conference call. A copy of the press release and financial tables, which includes a GAAP to non-GAAP reconciliation and other supplemental financial information, can be viewed and downloaded from our investor relations website. Additionally, a list of many customers who purchased Oracle Cloud Services or went live on Oracle Cloud recently will be available from our investor relations website. On the call today, our Chairman and Chief Technology Officer, Larry Ellison, and Chief Executive Officer, Safra Catz. As a reminder, today's discussion will include forward-looking statements, including predictions, expectations, estimates, or other information that might be considered forward-looking. Throughout today's discussion, we will provide some important factors relating to our business, which may potentially affect these forward-looking statements.

Ken Bond
Ken Bond
SVP of Investor Relations at Oracle

These forward-looking statements are also subject to risks and uncertainties that may cause actual results to differ materially from statements being made today. As a result, we caution you against placing undue reliance on these forward-looking statements, and we encourage you to review our most recent reports, including our 10-K and 10-Q, and any applicable amendments for a complete discussion of these factors and other risks which may affect our future results or the market price of our stock. And finally, we are not obligating ourselves to revise our results or these forward-looking statements in light of new information or future events. Before taking questions, we'll begin with a few prepared remarks. And with that, I'd like to turn the call over to Safra.

Safra Catz
Safra Catz
CEO at Oracle

Thanks, Ken, and good afternoon, everyone. We had another excellent quarter with third quarter revenue coming in as expected and EPS $0.02 above the high end of my guidance range. Now, before I get into the results of the quarter, I wanted to touch on the strength of our infrastructure cloud business. OCI has emerged as the largest driver of our overall revenue acceleration, growing much, much faster than our cloud competitors. Customers have figured out that by moving to OCI, they can really get more while paying less. But it's not just the cost that matters to our customers. Beyond the superior price performance of OCI, customers are choosing Oracle and Oracle services for multiple reasons. First, we know better than anyone what it takes to run the full stack of technology that goes into mission-critical workloads.

Safra Catz
Safra Catz
CEO at Oracle

I'm talking about running at enterprise scale with comprehensive security and unparalleled support, and that's from decades of experience running the world's most important workloads and optimizing clustering technology, which is critical to artificial intelligence workloads and database services. Secondly, our AI capabilities are unique as they're built in to help customers drive business outcomes. This is more than integrating generative AI across our Fusion and industry cloud applications and Autonomous Database, which we have done. It's also about enabling and refining these AI models with the customer's own data to better understand and serve their operations without them losing control of their own data. Third, we provide deployment flexibility for customers based on how they want to run in the cloud.

Safra Catz
Safra Catz
CEO at Oracle

In addition to offering public cloud services, we remain the only vendor which also offers a dedicated and complete Cloud@Customer, dedicated regions, sovereign clouds, and Alloy, our partner cloud. So customers don't have to compromise the services they receive while meeting their deployment needs. And finally, we provide multi-cloud offerings so customers can consume our cloud services in the public cloud of their choice. We offer Oracle Database@Azure with Microsoft, as well as MySQL HeatWave through multiple clouds, and you can expect more multi-cloud services to come. Now to Q3 results, which I'd like to point out, I had the actual results on day five and signed off with my auditors days ago. So I'm just bragging a little bit, but I couldn't help it.

Safra Catz
Safra Catz
CEO at Oracle

I know a lot of CFOs are pretty jealous. As I mentioned earlier, total revenue came in at the midpoint of my constant currency guidance, and EPS was above the high end of guidance. As was the case when I gave guidance last quarter, currency had little effect in Q3, but I'll still discuss our results using constant currency growth rates in the few areas that the rates are slightly different. So here we go. Cloud revenue, that's SaaS and IaaS, excluding Cerner, was $4.4 billion, up 26%. Including Cerner, total cloud revenue was up 24% at $5.1 billion, with IaaS revenue of $1.8 billion, up 49%, and SaaS revenue of $3.3 billion, up 14%. This quarter marks the first time our total cloud revenue is more than our total license support revenue, so we have crossed over.

Safra Catz
Safra Catz
CEO at Oracle

Total cloud services and license support revenue for the quarter was $10 billion, up 11%, driven again by our strategic cloud applications, Autonomous Database, and OCI. Application subscription revenues, which includes product support, were $4.6 billion and up 10%. Our strategic back-office SaaS applications now have annualized revenue of $7.4 billion, and we're up 18%. Infrastructure revenues, which includes license support, were $5.4 billion and up 13%. Infrastructure cloud services revenue was up 49%. Excluding legacy hosting services, OCI Gen 2 Infrastructure cloud services revenue grew 52%, with an annualized revenue of $6.7 billion. OCI consumption revenue was up 63%. Were it not for some continuing supply constraints, consumption growth would have been even higher.

Safra Catz
Safra Catz
CEO at Oracle

Database subscription revenues, which includes database license support, were up 5% and highlighted by cloud database services, which were up 34% and now have annualized revenue of $1.9 billion. Very importantly, as on-premise databases migrate to the cloud, we expect these cloud database services will be the third leg of revenue growth alongside strategic SaaS and OCI. Software license revenues were $1.3 billion, down 3%. So all in, total revenues for the quarter were $13.3 billion, up 7%, including Cerner, and up 9%, excluding Cerner. Now to margins. The gross margins for cloud services and license support was 77%. This is, as before, a result of the mix between support and cloud, in which cloud is growing much faster than support.

Safra Catz
Safra Catz
CEO at Oracle

Support and SaaS gross margin percentages are consistent with last year, while IaaS gross margins improved substantially year-over-year. While we continue to build data center capacity, overall gross margins will go higher as more of our cloud regions fill up. We monitor these expenses carefully to ensure gross margin percentages expand as we scale. And to that point, gross profit dollars of cloud services and license support grew 8% in Q3. Non-GAAP operating income was $5.8 billion, up 12% from last year. Operating margin was 44%, up from 42% last year, as we continue to drive more efficiencies in our operating expenses, which continue to trend down as a percentage of revenue.

Safra Catz
Safra Catz
CEO at Oracle

Looking forward, as we continue to benefit from economies of scale in the cloud and drive Cerner profitability to Oracle standards, we will not only continue to grow operating income, but we will also expand the operating margin percentages. The non-GAAP tax rate for the quarter was very close to my guidance at 18.9%, and non-GAAP EPS was $1.41 in USD, up 16% in both USD and constant currency. GAAP EPS was $0.85. At quarter end, we had nearly $9.9 billion in cash and marketable securities and short-term deferred revenue balance, and the short-term deferred revenue balance was $8.9 billion, up 4%. Over the last four quarters, operating cash flow was $18.2 billion, up 18%, and free cash flow was $12.3 billion, up 68%.

Safra Catz
Safra Catz
CEO at Oracle

Capital expenditures were $6 billion over the same time period as we continue to see cash flow benefit from our cloud transformation. Our remaining performance obligation, or RPO, is now over $8 billion, with the portion excluding Cerner up 41% in constant currency. We signed several large deals this quarter, and we have many more in the pipeline. Approximately 43% of our total RPO is expected to be recognized as revenue over the next 12 months, and this reflects the growing trend of customers wanting larger contracts as they see firsthand how Oracle Cloud Services are benefiting their businesses. And we expect to have some very nice joint announcements with NVIDIA next week. Now, while we spent $2.1 billion on CapEx this quarter, the $1.7 billion in the cash flow statement is slightly lower just due to the timing of payments.

Safra Catz
Safra Catz
CEO at Oracle

So the $2.1 billion is actually what we spent, and will pay for. We are working as quickly as we can to get the cloud capacity built out, given the enormity of our backlog and pipeline. I expect the CapEx will be somewhere around $7 billion-$7.5 billion this fiscal year, meaning our Q4 CapEx should be considerably higher. To that point, we now have 68 customer-facing cloud regions live, with 47 public cloud regions around the world and another 8 being built. Twelve of these public cloud regions interconnect with Azure, and more locations with Microsoft are coming online soon. We also have 11 dedicated regions live and 13 more planned, several national security regions and EU sovereign regions live, with increasing demand for more of each.

Safra Catz
Safra Catz
CEO at Oracle

And finally, we already have two Alloy cloud regions live, with five more planned, where Oracle partners become cloud providers, offering customized cloud services alongside Oracle Cloud. And of course, we have also many, many, many cloud customer installations. As I mentioned earlier, the sizing, flexibility, and deployment optionality of our cloud regions continues to be incredible advantage for us in the marketplace. And as we've said before, we're committed to returning value to our shareholders through technical innovation, acquisitions, stock repurchases, prudent use of debt, and a dividend. And this quarter, we repurchased 4 million shares for a total of $450 million. In addition, we paid out dividends of $4.4 billion over the last 12 months, and the board of directors declared a quarterly dividend of $0.40 per share today.

Safra Catz
Safra Catz
CEO at Oracle

Now, before I dive into Q4 guidance, I'd like to share some thoughts on what I see for the next 12 months or so. As demand for our cloud services continues getting stronger, our pipeline is growing even faster, and our win rates are going higher as well. As our supply constraints ease, revenue growth rates will accelerate higher as our capacity expands and we get into fiscal year 2025. I should also say that we continue to expect the FY 2024, of which we are now in the fourth quarter, total revenue, excluding Cerner, will accelerate from last year, as it has for the past three years, and will likely be significantly higher in FY 2025. In addition, Cerner, which is a significant headwind this year, we expect to return to growth next year.

Safra Catz
Safra Catz
CEO at Oracle

And finally, and, and I remain firmly committed to our FY 2026 financial goals for revenue, operating margin, and EPS growth. However, some of these goals might prove to be too conservative, given our momentum. Let me now turn to my guidance for Q4, which I'll review on a non-GAAP basis, as always. If currency exchange rates remain the same as they are now, currency should have little effect on total revenue and EPS. However, of course, actual currency impact may be different. So at least right now, all the numbers are the same for constant currency and USD. Total revenues, including Cerner, are expected to grow 4%-6%. Total revenue, excluding Cerner, are expected to grow 6%-8%.

Safra Catz
Safra Catz
CEO at Oracle

Total revenue. The total cloud revenue, excluding Cerner, is expected to grow 22%-24% as more capacity comes online in Q4. The EPS growth rate will be affected by the compare, as our Q4 tax rate last year was 9.2%, which I believe most of you have already accounted for in your models. My EPS guidance for Q4 assumes a base tax rate of 19%. As always, one-time tax events could cause actual tax rates to vary from my guidance like they did last year. So with that, non-GAAP EPS is expected to be down 2% or to flat and be between $1.62 and $1.66. And with that, I'll turn it over to Larry for his comments.

Larry Ellison
Larry Ellison
Chairman and CTO at Oracle

Thank you, Safra. Well, Oracle signed another big Generation 2 Cloud infrastructure contract with NVIDIA in Q3. Oracle's Gen 2 AI infrastructure business is booming. That's become pretty clear to everybody. But in addition to selling infrastructure for training AI large language models, Oracle is also completely reengineering its industry-specific applications to take full advantage of generative AI, artificial intelligence. The best example of this is in healthcare, where Oracle did not just add a bit of AI around the edges of existing applications. Instead, we developed completely new applications using our APEX application generator and our Autonomous Database. These all new applications use generative AI throughout the application. The best example is in healthcare, where our new ambulatory clinic system is being delivered to customers this Q4. This completely new application features a voice interface called the Clinical Digital Assistant.

Larry Ellison
Larry Ellison
Chairman and CTO at Oracle

The Clinical Digital Assistant listens to a doctor's consultations with a patient and automatically generates prescriptions, doctor's orders, doctor's notes, then automatically updates the patient's electronic health records. The Clinical Digital Assistant's voice interface makes our new healthcare systems dramatically easier to use and saves hours of doctors' precious time every day, which now can be spent with patients rather than typing into a computer. The delivery of our new AI-centric healthcare cloud applications, including the ambulatory clinic system, the Clinical Digital Assistant, and the Health Data Intelligence system, will enable the rapid modernization of our customer's healthcare systems and transform Oracle Health and Cerner into a high-growth business for years to come. Ken, back to you.

Safra Catz
Safra Catz
CEO at Oracle

We don't hear you, Ken.

Ken Bond
Ken Bond
SVP of Investor Relations at Oracle

Thank you. Thank you, Larry. Sorry about that. Krista, if you could please poll the audience for questions, and if we could proceed from there. Thank you.

Operator

Absolutely. If you would like to ask a question, please press star one on your telephone keypad. Your first question comes from the line of John DiFucci from Guggenheim Securities. Please go ahead.

John DiFucci
John DiFucci
Senior Research Analyst and Senior Managing Director at Guggenheim Securities

Thank you. Safra, the infrastructure as a service growth of 49% implies a Herculean increase in new business coming online, new ARR, the way we model it anyway. Something I just thought you wouldn't be able to do this quarter, given, given how much you had to do. Though we realize we don't know the timing of when deals come online, but last quarter, you said you were going to reallocate resources to focus on some of these very large OCI deals to get them implemented earlier, so you start to get revenue earlier. Is that what happened this quarter? Is that what we're seeing, or is that still, is that still to come?

Safra Catz
Safra Catz
CEO at Oracle

Honestly, John, that is still to come. So this is just pretty much our regular way business. That's what you're seeing. We have enormous amounts of demand. I tried to make that clear last quarter, and we have more capacity coming online, but we had tried to, you know, we tried to focus on much larger chunks of data center capacity and electricity and all of that. And, that's just, that's all to come. This is really our regular way business and our customers just growing. And a whole bunch of new customers, by the way, I think there, There are many, many customers who have come on and, that haven't gotten capacity yet. We've got at least 40 new AI bookings that are over $1 billion that haven't come online yet.

John DiFucci
John DiFucci
Senior Research Analyst and Senior Managing Director at Guggenheim Securities

That sounds.

Larry Ellison
Larry Ellison
Chairman and CTO at Oracle

John.

John DiFucci
John DiFucci
Senior Research Analyst and Senior Managing Director at Guggenheim Securities

That's... Go ahead, Larry. Sorry.

Larry Ellison
Larry Ellison
Chairman and CTO at Oracle

Okay. Let me add that Oracle is building data centers at a record level, and a lot of people, I think, are aware that we can build fairly small data centers to get started when we want to. But the unique thing about Oracle's data centers, they're all identical except for scale. We do not have custom data centers. They all have all the Oracle services. They are all complete. One of the things that's unusual about them, they're all completely automated. They come up on their own, and they kind of run themselves. I mean, look, we do have a bunch of people, you know, working on these data centers, but they are extremely high. They're highly automated. Our operating system is Autonomous Linux.

Larry Ellison
Larry Ellison
Chairman and CTO at Oracle

Our database is the Oracle Autonomous Database. Our new HeatWave database, our Microsoft and MySQL HeatWave, is highly automated. And therefore, we can build every time we build a data center, it's like the data center we built before, except for one thing, scale. We can go very small. We can get a full cloud data center with all the services in 10 racks. But this is what I want to point out. We're also building the largest data centers in the world that we know of. We're building an AI data center in the United States, where you could park 8 Boeing 747s, nose to tail, in that one data center.

Larry Ellison
Larry Ellison
Chairman and CTO at Oracle

So we are building large numbers of data centers, and some of those data centers are smallish, but some of those data centers are the largest AI data centers in the world. So we're bringing on enormous amounts of capacity over the next 24 months, because the demand is so high, we need to do that to satisfy our existing set of customers. Give you an idea, one more thing in terms of data centers. We're building 20 data centers for Microsoft and Azure. They just ordered 3 more data centers this quarter.

John DiFucci
John DiFucci
Senior Research Analyst and Senior Managing Director at Guggenheim Securities

Wow!

Larry Ellison
Larry Ellison
Chairman and CTO at Oracle

They're adding, they're adding to that already. And there are other multi-cloud agreements that are being signed. There are a number of multi-cloud agreements in Japan, where computer manufacturers in Japan are adopting our cloud and will be reselling our cloud as partners. And we think NRI is already doing that, but there are a number of other companies that are gonna be doing that. So that's something we're seeing over, again, demand for data centers of people who want to buy Alloy and then resell our cloud services with their proprietary cloud services on top of it. You know, we're seeing that. So some of our largest customers all over the world want their own Oracle region. They don't want to share a public cloud. They want, they want a dedi...

Larry Ellison
Larry Ellison
Chairman and CTO at Oracle

A cloud region dedicated, or actually multiple cloud regions dedicated to that bank or that technology company or that telephone company. So they're building their own data centers. Those are Oracle Cloud data centers. They are, they're all identical. So we're able to automate and run those with not a lot of additional labor costs. It's a huge advantage for us.

John DiFucci
John DiFucci
Senior Research Analyst and Senior Managing Director at Guggenheim Securities

Well, thank you, Larry and Safra. And listen, what you've put up this quarter in infrastructure as a service, it just looks pretty impressive, but it sounds like there's a lot more to come. So thank you for taking my question.

Larry Ellison
Larry Ellison
Chairman and CTO at Oracle

Yeah. John, my last comment will be the growth in RPO is what's to come. And RPO is obviously growing faster than revenue because we can't meet the demand. That's the measure of demand. The $80 billion RPO is quite an acceleration of demand. So demand is not slowing down, it's actually increasing quite a bit.

John DiFucci
John DiFucci
Senior Research Analyst and Senior Managing Director at Guggenheim Securities

Well, there were a lot of questions on that last quarter, and I guess there won't be any on this one. Thank you.

Larry Ellison
Larry Ellison
Chairman and CTO at Oracle

Thank you, John. Next question, please.

Operator

Your next question comes from the line of Raimo Lenschow from Barclays. Please go ahead.

Raimo Lenschow
Raimo Lenschow
Managing Director at Barclays

Hey, thank you, and congrats from me as well. I wanted to talk a little bit about Cerner. In the announcement, you talked about the most of Cerner now; it's running out of your OCI. Well, first of all-

Larry Ellison
Larry Ellison
Chairman and CTO at Oracle

Yeah

Raimo Lenschow
Raimo Lenschow
Managing Director at Barclays

That's a very quick turnaround here, so well done. What's kind of the implications for that, both from running efficiency but also innovation on the platform? Thank you.

Larry Ellison
Larry Ellison
Chairman and CTO at Oracle

Well, two things. One is we save a huge amount of money moving them into our standard data center, right? Because our OCI costs are much lower than the cost of the Cerner dedicated data center in Kansas City. Also, the big thing that we're excited about is OCI is highly secure. It's got a highly secure perimeter, and therefore, those, you know, those applications are much less vulnerable to ransomware or other kind of attacks than if they were in a different kind of data center. So we're very happy that these are now secured. The third thing is, now that they're in our cloud, we're able to update those applications on a regular three-month cadence.

Larry Ellison
Larry Ellison
Chairman and CTO at Oracle

So we're able to modernize those customers that are in the cloud on a regular basis and start delivering our brand new applications, the completely rewritten Cerner application, first for ambulatory clinics, and then eventually for acute care hospitals. And the ambulatory clinic system is coming out this quarter, and we're able to automatically deliver the you know, that system to existing customers. It's not a reimplementation. It is literally an update to what they've already got running in the Oracle Cloud. Even though it's an all-new application, I don't want to get into too much technical detail, but it uses the same underlying data schema. So we literally can bring up the new application you know, without the customer having to go through any implementation process.

Larry Ellison
Larry Ellison
Chairman and CTO at Oracle

We can do it just as an update, like when we ship a new version of Fusion to an existing Fusion customer. We can now ship a new version of—an all-new version of the Cerner application to a Cerner customer in OCI. So it allows us to modernize our infrastructure very, very rapidly, deliver the voice Clinical Digital Assistant, make the system easy to use, save doctors time, deliver a lot more value, put in the diagnostic imaging systems, the Health Data Intelligence system, deliver all of that automatically on a regular three-month cadence. So it allows us to modernize the Cerner base very, very quickly while keeping them safe from ransomware.

Raimo Lenschow
Raimo Lenschow
Managing Director at Barclays

Perfect. Thank you.

Operator

Your next question comes from the line of Ben Reitzes from Melius Research. Please go ahead.

Ben Reitzes
Ben Reitzes
Managing Director and Head of Technology Research at Melius Research

Yeah, thanks. It's a pleasure to be speaking with you this afternoon. Larry and Safra, can you talk a little bit about CapEx? Your guidance implies a almost doubling of CapEx in the fourth quarter. And then, what kind of trajectory is needed for the next fiscal year, given this RPO growth? What kind of uptick is needed? And Larry, if you don't mind, you know, what, if you can give some color on, you know, GPU availability and how that plays in, versus data center requirements in terms of that spending. Thanks so much.

Safra Catz
Safra Catz
CEO at Oracle

So, for fiscal year, for fiscal year 25, I'm looking at about $10 billion in CapEx, because it also involves not only some big centers, but it also involves expansion of existing centers. So we've already got some areas that we'll be filling out. So at least preliminarily, we're looking at $10 billion for next year. And then, you know, it's not too complicated to figure out the math here when I'm looking at somewhere between $7 billion and $7.5 billion for the full year, and you've got all the numbers for Q1, Q2, and Q3 at this point. And I would include for Q3, the one we just are announcing, I would, you know, add in the amount we haven't paid yet as the CapEx number for this quarter. Okay? And that gets-

Ben Reitzes
Ben Reitzes
Managing Director and Head of Technology Research at Melius Research

Yeah.

Safra Catz
Safra Catz
CEO at Oracle

That would be. And then Larry gets the second question. But anyway, so 2.1 for this quarter, and you've got Q1 and Q2, and I'm gonna be somewhere between seven and seven an a half for the full year, which is actually a little bit lower than I thought, but we were able to do pretty well. You know how we spend very carefully.

Ben Reitzes
Ben Reitzes
Managing Director and Head of Technology Research at Melius Research

Great, thanks. Larry, the amount that—you know, how's the GPU availability in terms of you hitting your goals and, you know, vis-à-vis, you know, other bottlenecks that could be out there?

Safra Catz
Safra Catz
CEO at Oracle

Can I take-

Larry Ellison
Larry Ellison
Chairman and CTO at Oracle

Well, uh-

Safra Catz
Safra Catz
CEO at Oracle

At least part of this? The GPU

Ben Reitzes
Ben Reitzes
Managing Director and Head of Technology Research at Melius Research

Oh, yeah, sure.

Safra Catz
Safra Catz
CEO at Oracle

We are good. We are actually very good in our GPU access and capability. So building the computers and that, it's much more making sure we've got the power on that.

Larry Ellison
Larry Ellison
Chairman and CTO at Oracle

Yeah.

Ben Reitzes
Ben Reitzes
Managing Director and Head of Technology Research at Melius Research

Thank you.

Larry Ellison
Larry Ellison
Chairman and CTO at Oracle

As Safra says, as Safra says, we have a great relationship with NVIDIA. You know, they're, they're a customer of ours, as well as us being a customer of theirs. And we work very closely together. So that's going pretty well. Building these, I mean, the scale of some of these data centers is breathtaking. Again, the one we're building in Salt Lake, again, you can park 8 747s nose to tail. We can give you a video of this, of this thing under construction, but it's hard to... I mean, it's, it's breathtaking. So there's a tremendous amount of demand. The data centers take longer to build than we would like.

Larry Ellison
Larry Ellison
Chairman and CTO at Oracle

That said, we are getting very good at building them quickly, and getting the building and the power and the communication links in, we're doing faster than we have ever have in the past. And the thing is, once we deliver the hardware, the hardware comes up very, very quickly, because the process of bringing up the hardware is now all automated. It's very different than it used to be. So we're able to bring additional capacity online very quickly if we have the electric power and the communication links. So the long pole in the tent is actually building the structure, connecting the electricity, and connecting the communication links.

Ben Reitzes
Ben Reitzes
Managing Director and Head of Technology Research at Melius Research

Thanks, Larry. Appreciate it. Congrats on the OCI growth.

Larry Ellison
Larry Ellison
Chairman and CTO at Oracle

Thank you.

Operator

Your next question comes from the line of Derrick Wood from TD Cowen. Please go ahead.

Derrick Wood
Derrick Wood
Managing Director at TD Cowen

Great. Thank you, Larry. Just within the last few months, you guys have enabled Oracle Database and OCI to be run on top of Azure, which seems like a fairly significant development. Can you talk about what the customer reception has been around this announcement, how you think it could change the arc of new investments on the Oracle Database platform, and what this means for potentially unlocking a stronger adoption cycle for Autonomous Database?

Larry Ellison
Larry Ellison
Chairman and CTO at Oracle

Well, I think it is the key to unlocking a stronger adoption cycle for moving Oracle in general to the cloud in general, and specifically, the migration to Autonomous Database. Oracle, we expect the multi-cloud initiative to continue to expand, that we're seeing it expand in Japan, but we expect it to expand amongst other hyperscalers, to adopt a similar, you know, a similar multi-cloud approach, where we build OCI regions inside of and coexisting with their existing cloud infrastructure. We think the world, the era of walled gardens is coming to an end, where it used to be, okay, I'm gonna move all my stuff to AWS, or I'm gonna move all my stuff to Azure.

Larry Ellison
Larry Ellison
Chairman and CTO at Oracle

What customers really want is the ability to use multiple clouds, and for those multiple clouds to talk to one another. I think, I mean, in the era of the internet, and now cloud computing, it is really called cloud computing. It's not called a bunch of separate clouds. So we expect multi-cloud to become the norm, and Oracle to be available everywhere.

Larry Ellison
Larry Ellison
Chairman and CTO at Oracle

Back to what you said, we think that will preserve our franchise and database, where we've been the number one database in in the IT ecosystem for a very long time. We think that's gonna preserve that franchise and expand it, because the Autonomous Database is a unique piece of technology, and there's nothing like it in the world. And maybe the most interesting thing, no one else is working on anything like that. No one else is even trying to duplicate the Autonomous Database. So we think it will become a very successful product in every cloud.

Derrick Wood
Derrick Wood
Managing Director at TD Cowen

Thanks, Larry.

Operator

Your next question comes from the line of Kirk Materne from Evercore ISI. Please go ahead.

Kirk Materne
Kirk Materne
Senior Managing Director of Software Equity Research at Evercore ISI

Yeah, thanks very much for taking the questions, and congrats on a, an incredible bookings quarter. Larry, I was wondering if you could just talk a little bit about the interest level on Alloy in international markets, where there might be a, a bit of a premium on data sovereignty, and, you know, maybe how that's impacting the growth opportunity for OCI when we look out towards the balance of calendar 2024. Thanks.

Larry Ellison
Larry Ellison
Chairman and CTO at Oracle

Well, I think Japan is maybe the most interesting market, where we had early success with NRI. You know, they run the Tokyo Stock Exchange. Now, what NRI has is just a couple of Oracle Cloud regions, which they resell in the financial services community inside of Japan, and one of their applications is a major stock exchange, the Tokyo Stock Exchange. So think about how many clouds run stock exchanges. That would be ours. It's got to be highly secure. It can never go down. It's got to have extremely high transaction rates.

Larry Ellison
Larry Ellison
Chairman and CTO at Oracle

We can do that, and the success of NRI has caused the other computer companies in Japan to become very, very interested in also reselling our cloud. And we also have the ability that they can add on some of their own technology to our cloud, so that our cloud is open. So you can plug in other things to the cloud. So imagine a big computer company in Japan adopting the Oracle cloud, reselling Autonomous Database, reselling all of our technologies, because all we only make one kind of cloud. They're all the same, and they have all of the services, but then that company can add their own services for their customers. We think all of the cloud companies in Japan are going to adopt OCI.

Larry Ellison
Larry Ellison
Chairman and CTO at Oracle

Plus, a lot of big companies, the big car companies in Japan will want their, want their own. The phone companies in Japan will want their own. The technology companies in Japan will want their own Oracle regions, and because they're sovereign, because they're highly secure, and because they're highly cost-effective. So we think this allows us to enter a variety of new markets. Every government, pretty much every government is gonna want a sovereign cloud, and a dedicated region for that government, for not only to. So we see a number of countries, you know, it, it's funny, we, we talk about, you know, winning business with companies.

Larry Ellison
Larry Ellison
Chairman and CTO at Oracle

For the first time, we're beginning to win business for countries, you know, for sovereign clouds, where the national government and the state governments are moving to that Oracle OCI region. And of course, it's got to be at least two of them, for redundancy, for, you know, in case of disaster and disaster recovery. So we have a number of countries where we're negotiating, you know, sovereign, sovereign regions with the national government. We see that time and time again, major companies, governments, computer suppliers reselling our Alloy cloud. The demand for our cloud regions is extraordinarily high. I believe we will end up, well, this is a funny prediction, but okay, we'll end up with more data centers in cloud regions than all the other hyperscalers combined.

Safra Catz
Safra Catz
CEO at Oracle

Yes, I think that's-

Larry Ellison
Larry Ellison
Chairman and CTO at Oracle

That's what I believe.

Safra Catz
Safra Catz
CEO at Oracle

Sure. So just to make sure you have all the numbers, between Alloy and dedicated regions, we've got 13 live, we've got 18 under construction, and we've signed five new ones just this past quarter. So, in for us, it's, they're just, there's just a list we're going through and trying to get them all, because they are such a unique capability and in such high demand.

Larry Ellison
Larry Ellison
Chairman and CTO at Oracle

And let me just add one last thing. Microsoft does not compete for this business. AWS does not compete for this business. Google does not compete for this business. We're the only ones in this business.

Kirk Materne
Kirk Materne
Senior Managing Director of Software Equity Research at Evercore ISI

Thank you all.

Operator

Our final question today comes from Brad Zelnick from Deutsche Bank. Please go ahead.

Brad Zelnick
Brad Zelnick
Managing Director of Software Equity Research at Deutsche Bank

Thanks very much for taking my question. Larry, my question actually follows on your answer to Kirk's question, because I think it's so important. You know, in talking to one of your GSI partners, we heard about a global public sector solution that they referred to as Government in a Box, where Oracle, in partnership with the likes of Starlink, the Tony Blair Project, are building solutions on top of OCI, including Apps and Tech, and even Cerner, to literally run entire countries' digital operations. So, hoping you can add even a little bit more color about what you're doing here, how big an opportunity it is, because it just seems like such a powerful example of the entire Oracle Cloud stack coming together in a very meaningful way.

Larry Ellison
Larry Ellison
Chairman and CTO at Oracle

Well, it is really, really—it's very interesting, and we've gone into the government, you know, national government and state government applications in a very, very big way. To give you an idea, a little glimpse of what we're doing, yes, because we can deliver these cloud regions to medium-sized countries. So, for example, Serbia is standardizing on Oracle Cloud regions for, you know, for the national government. We're automating their healthcare, and people know that we're in the healthcare business. What they might not know is, in cooperation with Starlink, we're able to deliver an internet service to the entire country, rural, you know, the rural part of the country.

Larry Ellison
Larry Ellison
Chairman and CTO at Oracle

By the way, we can deliver the internet, and we have delivered the internet to, let's say, Kenya or Rwanda, very inexpensively, using Starlink and our sovereign cloud regions, to backhaul the internet traffic. So you can bring every school in Serbia online, has internet connectivity, even if they're rural, doesn't matter. Every school, every hospital. That's true of Rwanda, that's true of Kenya. We can do it very, very cost effectively. And one of the applications we have for agriculture, we actually do a national map of the country, where we can show you each of the farms in the country, what they're... This farm is growing coffee, this farm is growing maize, this farm...

Larry Ellison
Larry Ellison
Chairman and CTO at Oracle

Which part of the fields are getting enough nitrogen, which part of the fields are getting enough water, what corrective actions you need to take to increase your agricultural output. We're doing that again in concert with Elon Musk's and SpaceX to do this kind of mapping to provide this AI-assisted, and these maps are AI-assisted. Help them plan their agricultural output and predict their agricultural output, predict markets, the logistics of the agricultural output, doing all of those things as next-generation national applications. And it is one of the most exciting things we're doing. Of course, we do procurement and accounting and human resources and recruiting, you know, for the government. We do all of those applications.

Larry Ellison
Larry Ellison
Chairman and CTO at Oracle

But in some of the newer applications, we're regarding food security, making sure all the schools are online, rural schools are online, that rural hospitals are online. It's automating those rural hospitals. It's automating their vaccination program, their healthcare program across the board. These next-generation applications are very attractive. I'll tell you one other crazy thing that we do. Well, another generative AI application. If you want to join the EU, it took Serbia eight years to harmonize their laws to be able to join the EU. Albania is facing the same thing, but with generative AI, we can read the entire corpus of the Albanian laws and actually harmonize their laws with the EU, in probably more like 18 months to two years, rather than the eight years it took Serbia.

Larry Ellison
Larry Ellison
Chairman and CTO at Oracle

So there are all sorts of interesting new AI applications out there that people, you've probably never heard of before, at least I hadn't heard of before, until this last 12 months, that we've worked on and we're now in the process of delivering.

Brad Zelnick
Brad Zelnick
Managing Director of Software Equity Research at Deutsche Bank

Really amazing stuff, Larry. Thank you and congrats. And Safra, really great to see the firm reiteration of your fiscal 26 targets. Thanks so much for taking my question.

Safra Catz
Safra Catz
CEO at Oracle

Thank you.

Ken Bond
Ken Bond
SVP of Investor Relations at Oracle

Thank you, Brad. A telephonic replay of this conference call will be available for 24 hours on our investor relations website. Thank you for joining us today. With that, I'll turn the call back to Krista for closing.

Operator

Thank you, everyone. This does conclude today's conference call. Thank you for your participation, and you may now disconnect.

Executives
    • Ken Bond
      Ken Bond
      SVP of Investor Relations
    • Safra Catz
      Safra Catz
      CEO
    • Larry Ellison
      Larry Ellison
      Chairman and CTO
Analysts
    • John DiFucci
      Senior Research Analyst and Senior Managing Director at Guggenheim Securities
    • Raimo Lenschow
      Managing Director at Barclays
    • Ben Reitzes
      Managing Director and Head of Technology Research at Melius Research
    • Derrick Wood
      Managing Director at TD Cowen
    • Kirk Materne
      Senior Managing Director of Software Equity Research at Evercore ISI
    • Brad Zelnick
      Managing Director of Software Equity Research at Deutsche Bank
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