Oracle Corp

NYSE:ORCL

Earnings Call Transcript 2019-Q4

[Operator]

Welcome to Oracle’s Fourth Quarter 2019 Earnings Conference Call. Now, I’d like to turn today’s call over to Ken Bond, Senior Vice President, Investor Relations. Sir, I hand the floor to you.

[Ken Bond, IR]

Thank you, Holly. Good afternoon, everyone, and welcome to Oracle’s fourth quarter and fiscal year 2019 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.

On the call today are Chairman and Chief Technology Officer, Larry Ellison; and CEOs, Safra Catz and Mark Hurd.

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 present some important factors relating to our business which may potentially affect these forward-looking statements. These forward-looking statements are also subject to risks and uncertainties that may cause actual results to differ materially from statements 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 amendment for a complete discussion of these factors and other risks that may affect our future results or the market price of our stock.

And finally, we are not obligating ourselves to revise our results or publicly release any revision to 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, CEO]

Thanks, Ken. Good afternoon, everyone. As you can see, we had a terrific quarter with total revenue growth one point above the high end of my guidance and earnings per share $0.07 above the high end of my US dollar guidance. I’ll first go over Q4 and recap fiscal year 2019 before moving on to my guidance. I'll then turn the call over to Larry and Mark for their comments.

As in prior quarters, I'll review our non-GAAP results using constant dollar growth rate unless I say otherwise. Now the effects of currency movements in Q4 were largely as expected, maybe a smidge more incremental headwind than expected, but that was not a full percentage more. Anyway, total cloud services and license support revenues for the quarter were 6.8 billion, up 3%, while cloud license and on-premise license revenues were 2.5 billion, up 15%.

In particular, technology license growth was up 19%, making it abundantly clear that customers are investing in the Oracle platform. The key database options necessary to run the Oracle autonomous database service grew 21%. I cannot stress enough the stability and growth of our base of customers, quarter after quarter. Our customers are maintaining and expanding this Oracle environment. And in our BYOL, bring your own license model, they have the portability to use their licenses on premise, in the cloud, or via hybrid environments.

This popularity is largely because our products are capable of doing things others just can't do, whether it's security, performance, or scalability and in our cloud autonomous capabilities. As our customers adopt our technologies, whether via licenses or cloud services, our overall customer base is growing and that growth is starting to accelerate. In addition, the recent interconnect agreement with Microsoft will only help accelerate the transition from on premise database to the autonomous database service.

Now, to the numbers, the gross margin for cloud services and license support was 86% and as we continue to scale and grow, I expect this will go even higher. Total revenues for the quarter were 11.1 billion, up 4% from last year. Non-GAAP operating income was 5.3 billion, up 7% from last year, and the operating margin was 47%, which was up from 46% last year. The non-GAAP tax rate for the quarter was at 16.4%, slightly below our base tax rate of 20% as a result of some discrete items and EPS was $1.16 in US dollars, and up 27% in constant currency, and 23% in USD. The GAAP tax rate was 3.3%, also a result of some discrete items and GAAP EPS was $1.07 in US dollars and up 41% in constant currency, 36% in US dollars.

Now, moving on to recap the full fiscal year, total cloud services and license support revenue was 26.7 billion, growing 4%. Total company revenues for the year were 39.5 billion, growing 3% as compared to 2% total revenue growth in FY18. Non-GAAP EPS was $3.52 in US dollars, up 19% in constant currency, up 16% in US dollars, driven by operating income growth, share repurchases and lower tax rate.

This is mirrored in our operating margin percentage for the full year, which was up slightly to 44% this year. As a reminder, our best ever full year operating margin was 47%. And I expect we will surpass that in the coming years as our total revenue growth accelerates, and we benefit from greater scale in our business. Operating cash flow over the last four quarters was 14.6 billion, lower than last year, only because, as you will see at the bottom of our cash flow statement in the 10-K, FY19 cash tax payments were $1.3 billion higher this year, including the 610 million installment towards the transition tax in Q2, and nearly 540 million in higher tax payments in Q4.

Capital expenditures for the year were 1.7 billion and free cash flow over the last four quarters was 12.9 billion. We now have approximately 38 billion in cash and marketable securities. The short term deferred revenue balance is 8.4 billion, up 3% in constant currency. As we said before, we're committed to returning value to our shareholders through technical innovation, strategic acquisitions, stock repurchases, prudent use of debt and the dividend.

This quarter, we repurchased 112 million shares for a total of $6 billion. Over the last 12 months, we have repurchased 734 million shares for a total of 36 billion. Over the last five years, we've reduced the shares outstanding by almost 25% with nearly 60% of the total reduction this past year in FY19. In addition, we've paid out dividends of 2.9 billion over the last 12 months, and the Board of Directors again declared a quarterly dividend of $0.24 per share.

Now to the guidance, my guidance today is a non-GAAP basis and in constant currency. Assuming the current exchange rates remain the same as they are now, currency should have about 1% negative effect on total revenues, and about $0.01 negative effects on EPS. So, for Q1, total revenues are expected to grow between 1% to 3% in constant currency and assuming a 1% currency headwind, total revenues are expected to grow between 0 and 2% in USD.

Non-GAAP EPS in constant currency is expected to grow between 14% to 16% and be between $0.81 and $0.83 in constant currency and assuming the $0.01 headwind, non-GAAP EPS in USD is expected to grow between 12% and 14% and be between $0.80 and $0.82 in USD. Now, this past year, we grew 3%. And for fiscal year 2020, I expect total revenue will grow faster than last year, constant currency of course, and that we will once again report double digit EPS growth.

Total CapEx for fiscal year ’20 is expected to be about 2.2 billion, but it could move a little depending on our bookings. My EPS guidance for Q1 and fiscal year ‘20 assumes a base rate of 20%. However, one-time tax events could cause actual tax rates for any given quarter to vary from our base, both higher or lower. But I expect that in normalizing for these one-time tax events, our tax rate will average around 20% for fiscal year 2020.

And with that, I'll turn it over to Mark for his comments.

[Mark Hurd, CEO]

Thanks, Safra. Really, we just had a solid quarter from top to bottom. Total revenue was up 4% in constant currency with cloud license and support up 3% and EPS up 27% in constant currency. In apps, we had great momentum, we grew 6% for the year. We're now at $11.5 billion in trailing 12 months revenue. 92% of that recurred. We continue to grow revenue faster than market. And we have just an enormous opportunity in front of us in ERP and HCM and I'll talk to that in a second.

In SaaS revenue and bookings, let me just give you a few stats to give you some context of what happened. Overall, ERP and HCM annualized SaaS revenue is now at 2.9, or call it 3 billion, and it was up in the high-20s. Fusion apps revenue was plus 36% in Q4, and up 32% for the full year. Fusion HCM was up 25% in Q4, solid growth, with nice wins that I'll discuss again in a second. Fusion ERP revenue was up 44% and also up 44% for the full year. NetSuite ERP was up 28% in Q4, as the strong momentum continues.

They had strong bookings in the quarter. And I remind you that last Q4, they had 72% growth in bookings, in addition to what was a plus 30% growth in bookings this Q4, and that's what drove this revenue growth. And when we acquired NetSuite, we had roughly 15% growth rates, and those have doubled now since the acquisition.

In our verticals, the revenue was up 19% and 32% for the year. In our data as a service, just to give you some further context within our SaaS business, our challenges related to the broader privacy issues continued and revenue was down 15%.

Now, I'm going to give you an IDC quote that I have to read as is, so I can't improvise, but let me give you the quotes, the words, and then the closed quotes. “Per IDC's latest annual market share results, Oracle gained the most market share globally out of all enterprise applications, SaaS vendors, three years running, in calendar years ’16, ‘17 and ‘18.” And I can’t improvise on that quote, although I'd like to. So anyway, we assess strong momentum in the app space. I'll talk to you about some of the wins in a second.

In our infrastructure ecosystem, the [indiscernible] ecosystem was 21.1 billion on a trailing 12 months basis and Q4 was up 7% with database up mid single digits, driven by mid-teens database license growth and we repeat that mid-teens database license growth. Autonomous database, and I'm telling it, while the numbers helped us in Q4, they were still small. But -- if you extrapolate them, they are relatively -- not relatively, they're very significant. More than 5000 new trials were added in Q4 alone.

We got a great pull-through business with 40% of our Q4 wins. So 40% of the time, we won our autonomous database, we pulled through analytics. We're adding many new customers, so of all the customers we’re adding with autonomous database and you might think we're replacing just our base which by the way, we’d be required to do, about 20% of our customers are just brand new to Oracle. They were not an Oracle Database customer, when they bought the autonomous database. And new workloads are 40%, meaning that I am an Oracle Database customer, but I'm putting a different workload on the autonomous database than I had on the Oracle database, but we have both new and existing customers doing both.

Now, to Safra’s point and she hit it briefly, I want to hit it just a little harder. In the key database options that you need to run autonomous, so these being wrapped and multi tenant and active Data Guard if you want the SLA, our license growth was up 21%. So why do you think the market is growing 2, 3, 3 points up whatever number you think from your favorite analyst. This was a huge share gain customer for us or share gain quarter for us in database.

It was a solid quarter, we exceeded our revenue target and saw 27% EPS growth. Our bookings growth climbed with our renewal rates, meaning our continuing renewal rates of existing customers gives us confidence that our cloud apps business will also just continue to strengthen from here. I thought I’d give you just a couple of key wins we had during the quarter and I'm going to try and give you a little more color of the typical size of the companies we're selling to.

I'm going to try and give you a little bit about who we replaced in the deal and give you some rhythms, so you get a feel for all this. Some of our key wins and I'll focus on some back office wins. Argo Insurance, about $2 billion company; [indiscernible], a mining company in Australia, $2.3 billion company, Diebold Nixdorf, that's an interesting one because I used to compete with them when I was in MCR, Diebold bought Nixdorf and Diebold was an EBS customer, Nixdorf was an SAP customer. They combined the two and they will be going to Oracle Cloud ERP. So whole Diebold Nixdorf will run on our Oracle Cloud ERP. [indiscernible] out of Brazil, about $31.3 billion, they bought ERP supply chain and procurement, fantastic win for us and they were running on TOTVS, Brazilian ERP company and so they’re net new to Oracle.

Experian, which is a $1 billion company bought our whole -- really our whole ERP suite, ERP planning, supply chain, procurement, they did it against a background of basically having a little bit of everything, they had a little bit of EBS, a little bit of SAP and a little bit of Microsoft and replaced it all with the Oracle Cloud. Now, this company you may never heard of, Helmerich & Payne, the reason I've heard them is their stock symbol on the New York Stock Exchange was HP.

And for years, I wanted their stock symbol and they're about a $1.6 billion company. And while I never got the stock symbol from them, we have replaced Epicor with Oracle cloud ERP at Helmerich & Payne. So anyway, that would just give you some idea on that. Ferguson, which is one of the largest plumbing wholesale and distribution companies, they are a $21 billion company. They bought ERP, EPM supply chain procurement. Just a tremendous, tremendous win for us and we’re looking to partner with them. Santander in the US, another tremendous win for us.

Wright Medical, which was very competitive, Emerson Electric, [indiscernible] University, which is deployed, not only all of our financials and ERP, but are deploying our new student scheduling system which deals with all of commissions and commissions for grants and discounting, very difficult stuff to deal with in higher ed. So very key win for us in the quarter, a great HCM win at waste management. Waste Management is a $13 billion company in Houston. This is HCM, payroll, talent, some amount of ERP. Tiffany, I'm sure all of you have bought something from Tiffany for some important occasion. Tiffany will be running on our HCM location.

Okay, I'm getting a sign to stop here, but it was a very good quarter in terms of just quality logos and I think what I was, let me just try to do one, maybe a couple of other things for you, just to give you some flavor. We get asked this in Q&A a lot. I'm just reading down the list and -- of what I'm looking at as about 150 on my page, I’d say 120 bought more than one module from us. And as I read the competitors, the competitor or the incumbent that got replaced, they start SAP, EBS, EBS, Totus, Microsoft, Epicor, Infor, Lawson, Infineon, Microsoft, EBS. I mean, I could go on and on, but that would give you a flavor that we're getting as many and I didn't do this accounting exactly, but as many of our logos from outside of the traditional Oracle user base, as we are from the Oracle user base.

With that, I'll turn it over to Larry.

[Larry Ellison, Chairman and Chief Technology Officer]

Thank you, Mark. As Mark said, in Q4, we saw a surge in database license sales. We also saw very rapid growth in sales of those database options required to run our autonomous database. We continue to gain overall database market share as we migrate our database users to the cloud. In the quarter, we added over 5000 new autonomous database trials in our Gen2 public cloud. Our new Gen2 cloud infrastructure offers customers a compelling array of advanced technology features, including our self driving database that automatically encrypts all your data, backs itself up, tunes itself, upgrades itself and automatically patches itself when a security threat is detected. It says all of this autonomously, well running without the need for any human intervention and without the need for any downtime. No other cloud infrastructure provides anything close to these autonomous features.

[Ken Bond, IR]

Thank you, Larry. Holly, if we can start the Q&A portion of the call please.

[Operator]

[Operator Instructions] And our first question comes from the line of Michael Turits, Raymond James.

[Michael Turits, Raymond James]

Good evening, strong quarter in a lot of ways and database obviously stood up, but I'd like to ask about the recent Azure partnership. In general, your strategy has been to make sure that on premise Oracle workloads move to Oracle Cloud. Does this Azure partnership represent an opening to Oracle workloads running on other clouds? Or is it more directed at just getting Azure services integrated with Oracle Cloud workloads?

[Mark Hurd, CEO]

It really is most customers have Microsoft technology and Oracle Technology. So, they might have a Microsoft analytics suite and their data in an oracle database and we want to make it as easy as possible for you to run those Microsoft analytics in Azure, accessing the Oracle database and the Oracle public cloud. And we built these high speed interfaces and made -- as we made, we glued the technologies together. But we also have unified the customer experience. So the customers, it feels to the customer like they're working in one cloud, but they have two suites of products and technologies they have access to, and they can interconnect those things. But now, the Oracle database is still running in the Oracle Cloud and the Microsoft analytic technology is running in the Microsoft Cloud. They're just talking to each other at high speed and highly reliable.

[Operator]

Our next question will come from the line of Mark Moerdler, Bernstein Research.

[Mark Moerdler, Bernstein Research]

Congrats on a strong quarter. I'd like to focus my question on the database business and especially autonomous database. Mark, Safra, thanks for the data you gave on autonomous, on the call. But can you give us some more color on how we should think about the database revenue going forward? Is autonomous adoption hitting the stride where we're going to visibly see the license revenue on a quarter by quarter basis and what's this impact going forward on cloud revenue?

[Mark Hurd, CEO]

Let me give you what I think is maybe the most interesting thing we can say about this. We have two ways of forecasting our autonomous database business. One is the traditional way where the field comes out with quarterly forecasts. We put together annual plans. And that's, in fact, what we relied upon for years in terms of giving you guidance. But now that we're in the cloud business, we have some interesting additional data, not around field sales, if you will, bookings, for selling our cloud services and our technology, but rather, we have real data about consumption inside of our cloud, and we started collecting the consumption data, because to add capacity to the cloud, Safra said, depending on bookings, we might have to spend more money.

Let me be a little bit more precise. It's not even bookings that drive it. Bookings that lead to increased consumption triggers our just-in time provisioning of hardware into our public clouds. And right now, we're getting signals from our usage in our Gen2 cloud that is signaling much faster autonomous database growth than we're seeing from our sales forecasts. It's just kind of interesting, but encouraging.

[Operator]

And our next question is going to come from the line of Brad Zelnick, Credit Suisse.

[Brad Zelnick, Credit Suisse]

It's great seeing the business accelerating like this. My question is for Larry. Larry, it's so nice to see the early success in autonomous database and demand for database options. But as we think about the long term prospects of the database business, in years past, a lot of your success was tied to the ISV ecosystem. And it would seem the future is increasingly about embracing software developers. First, would you agree with that statement? And how do you see Oracle attracting developers to your database and OCI more broadly?

[Larry Ellison, Chairman and Chief Technology Officer]

I think you’re saying the same thing, why is it attractive to -- why is it good to attract developers, because developers write applications, and most important applications are ISV applications, which are used across the board. So I don't think anything's changed at all. Developers were always, if you will, the foundation of our business. We have over 1 million developers in our ecosystem already. And most ISVs, most of the current ISVs in the cloud use the Oracle database. I mean, everything that Salesforce.com runs pretty much is running on the Oracle database.

Everything that SAP acquired to run in the cloud runs on the Oracle Database. Now, I know SAP says they are going to move [indiscernible] but that said that 6 years ago, haven't quite gotten there yet. Anyway, we go after developers. In fact, yesterday, we were putting the finishing touches of a program we're going to be announcing to developers at Oracle OpenWorld, which is basically free services to developers, [indiscernible] if you will.

So developers and college entrepreneurs can get this free service, will be able to provide this free service that will let developers to start on the Oracle cloud, build their applications, and graduate from being a maybe a sole entrepreneur, someplace in the dorm in MIT to eventually being an entrepreneur starting a company and then becoming an ISV. That's the cycle. We want to sign up people early. And we have all sorts of cloud programs we're putting in place to be able to do that.

[Operator]

Our next question will come from the line of John DiFucci, Jefferies.

[John DiFucci, Jefferies]

You know what, I'm going to follow up with another database. I know the apps was good too, but I can't help myself, been waiting for this.

[Larry Ellison, Chairman and Chief Technology Officer]

[Technical Difficulty] We’ve been working on this for a long time and it's great to see it just begin to show up in the numbers.

[John DiFucci, Jefferies]

It is and the timing is kind of odd, Larry because many infrastructure companies this quarter have struggled lately and as you probably know, the logical conclusion from the investment community was that we’d see some relative weakness out of Oracle, but your constant currency infrastructure growth was better than it’s been in, I mean, since you've been doing this. So like over the last since I went back looking back to 2006 -- fiscal ‘16 and in this quarter, the constant currency growth was better than it’s been since -- over that time period. I guess, Larry, you mentioned the options and that's something we’ve been sort of waiting for and looking for. I guess, can you give a little more detail on that? And then, maybe even more generally, maybe, Mark, if you can give us some detailed comments or comments on the general broad base infrastructure IT demand out there. We're not just covering Oracle, right. We're just trying to figure out what's going on out there.

[Larry Ellison, Chairman and Chief Technology Officer]

Okay, so let me -- there are two options that I think Mark mentioned them that are absolutely required to use autonomous database. One is the multi-tenancy option. This is the one where you can take an existing application, it could be an ISV, take an existing application that was never built to be multi-tenant, you move it to the Oracle database, you don't change a thing, and you suddenly have a multi-tenant database. So that's one thing that's required for autonomous database.

The other thing is this real application clustering. Real application clustering refers to the fact that we use multiple computers to run every database instances. So in case one of those computers should fall off, there's, our systems are [fall tolerant] [ph], they keep running. So the autonomous database never breaks, never breaks.

[Operator]

Ladies and gentlemen, stand by. And our next question is going to come from the line of Heather Bellini, Goldman Sachs.

[Larry Ellison, Chairman and Chief Technology Officer]

Heather, can you hold on for a moment. Heather, can you hear me okay?

[Heather Bellini, Goldman Sachs]

Yeah. Can you hear me? We went silent for a minute before.

[Mark Hurd, CEO]

Okay, I apologize, everybody. Why don’t – Larry, would you like us to continue on or…

[Larry Ellison, Chairman and Chief Technology Officer]

I’d like to answer the questions.

[Safra Catz, CEO]

Yeah. John, did you get any of Larry's answer?

[Operator]

Standby, let me open up John’s line.

[Mark Hurd, CEO]

Thank you, Heather. John, we’ll get you back on the line and we'll kind of figure out, apologies for this logistics.

[Larry Ellison, Chairman and Chief Technology Officer]

Let me, I’m going to cycle back and repeat my answer. So the answer, there are two options required for autonomous database. One is the multi-tenancy option. And that allows, let's say, an existing ISV to take an application that was never meant for the cloud, move it to our autonomous database with the multi-tenancy option, and suddenly, they're not changing their application, their application becomes a multi tenant cloud application. That's one key feature and we've seen sales of that skyrocket.

The other key feature of autonomous database that's required to use autonomous database is this feature called RAC. RAC is the ability to use multiple computers to run a single application or a single database instance. So in case one of those computers should fail, we tolerate that failure and the application keeps running, because we have multiple computers, you might have 1, you might have 2, 3, 4, but you lose 1 or 2, you still have 2, 3, 4 left, whatever – however you configure the system, we will only configure autonomous database with multiple computers.

Autonomous database never fails, you must have the RAC option to ensure that. RAC options are growing more rapidly than you would expect being driven again by consumption of the autonomous database. So we're seeing very, very rapid adoption. In fact, another thing to add a little color to this, initial transaction, a lot of our existing customers might come in with a very small project, let's say, a $30,000 ARR project, and within 60, 90 and 120 days, that becomes $120,000 project.

And after another few months, it becomes $0.5 million project. So, we're really optimistic about this business. And the optimism and I'm just back to what I said earlier, the optimism was not in Safra’s guidance, which is based on sales forecasts. The thing that I find fascinating are the consumption data curves, which shows our consumption rate growing much faster than the fields currently anticipating. To me, that’s just wonderfully encouraging. And hopefully this is the beginning of the trend. We'll find out soon.

[Ken Bond, IR]

Okay, Holly, if we could now…

[Larry Ellison, Chairman and Chief Technology Officer]

I think Mark had a follow-on. Do you have closing remarks as well?

[John DiFucci, Jefferies]

It was just, we're seeing a lot of funky stuff out there for infrastructure software. And I’m just wondering, I mean, you guys have a broad customer base, just like wondering what you're seeing in general. Are you seeing any, I mean, your business is strong, but there's a lot of companies that have struggled recently. Are you seeing anything -- any changes out there for infrastructure demand in general, beyond Oracle, even?

[Mark Hurd, CEO]

Yeah. We have new hot products. I mean, that's the difference. I think that, again, I won't speak to everybody, but when you go out with the autonomous database, Larry talked about a lot of different factors. But from a business perspective, we very rarely had a product that we can go talk to somebody at a senior level and say, how would you like to get more secure, save money and get better performance all at the same time.

[Larry Ellison, Chairman and Chief Technology Officer]

How would you like to outsource the security detection and patching responsibilities to somebody who does this for a living? So you never have to read the name of your company above the fold on the front page, talking about how much data you just lost. So, I’ll let Mark talk.

[Mark Hurd, CEO]

Well, this is a really simple message. This is different from saying, we've got a new, we've got a new partitioning. Yeah. Anyway, it's just a very different approach for us and so we've got new products, you know about the strength John, you mentioned in cloud apps, and, we benefit from a set of competitors that are in different stages of maturation, most of which are weak. And we've got great products, and what we're just now bringing out in autonomous database. And so, I think that's a bit different just in terms of the various product cycles that we're in, versus what other people might be in.

[Larry Ellison, Chairman and Chief Technology Officer]

Yeah, let me maybe then close with -- I couldn't agree more with Mark on really great, hot new products, like autonomous database, Fusion cloud application suite, NetSuite are selling really well and that’s very accelerating. They're doing extremely well. Quite frankly, we have some other product lines that we’re quite naturally downsizing, like some of the acquired kind of hardware. There are some oldest on-premise, software products that aren't really doing well. Mark mentioned data cloud, because of all the privacy issues. So yeah, there are some of our businesses that are not, if you will, hot. But the good news is, the hot businesses are now bigger than the not so hot businesses, and that's determining our future.

[Mark Hurd, CEO]

What Larry said is right. I think it's worth noting, our SPARC business declined 24%, 25% this quarter. Our NetSuite business grew, as we described, in the high-20s. And they don't cancel out and that's what's now bigger, but when we look at the aggregate growth rate of the company, it's made up of negative 25s and plus 27s, like what I just described. And so, it does create the phenomena that Larry described.

[Larry Ellison, Chairman and Chief Technology Officer]

Yeah. Again, it looked like and I swear this will be the last part of the answer to your question. It does look like, the top line is moving up modestly. But underneath that, there's really a lot of activity, you have these very, these modern businesses like the autonomous database, Fusion, NetSuite growing very rapidly, taking share. Clear number ones in the overall marketplace. [indiscernible], this is dominant and number one and provide ERP. And, you have these other businesses that are melting away and we just don't care. We are focused on our SPARC products and our SPARC products are now driving our top line higher.

[Operator]

And our next question will come from Heather Bellini, Goldman Sachs.

[Heather Bellini, Goldman Sachs]

Okay, so I guess I should spend a little bit of time on the app segment, given everyone's been focusing on the infrastructure segments so far. It obviously looks like that was another strong quarter there. I was wondering Mark, if you could share with us in terms of how the SaaS business is performing, if you could look out next year. I mean, you had tougher comps in the fiscal year that just ended, right, as the anniversary of NetSuite went on. When you think about the types of acceleration we could see, can you walk us through kind of the puts and takes in terms of the types of acceleration we might be able to see in that business? And also, I wanted to ask you, I mean, SAP is going through where they're trying to get customers to re-platform, how much of an opportunity is that for you to go and potentially, win back some of those customers or to win some of those customers for the first time, so wondering kind of the competitive environment I guess that’s in Workday and SAP and how you're seeing that play out within some of the announcements [indiscernible]?

[Mark Hurd, CEO]

Okay, well that question would take me like an hour to get [Technical Difficulty] The abridged version, I think to your point, SAP is forcing older customers to a new platform by the beginning of 2025 that forces all their customers to move and all the changes, not just the changes they've just made, but all the changes they made to the code has to be remade to the code. And what that means is, they have to roll up a big new bill to move to this thing Larry called earlier HANA. And it's a big damn bill and so the poor CIO or CFO, wherever this guy is, has to show up to the board and say to the board of directors, we've got a $500 million bill to move to HANA and you all on the phone are smart. My guess is the board member says something clever, like, what's HANA?

And the guy goes, well, it's a platform and the guy goes, well, what's the platform? He goes, well, it's a new thing we run our ERP on. The guy goes, okay, and it costs $500 million. The guy goes, oh yeah, and he goes, what do we get for. The guy goes, well, we get some new plumbing and we get some new this and I just think that meeting goes very badly. And somewhere in the mean, the customer goes, who else have you talked to? Do we have an alternative? Could we not do it? Could we go with somebody else?

So yeah, I mean, I think it's an incredibly interesting strategy on their part, to put all their customers at play. Do we get calls from customers that we haven't been called or talked to in 20 years? The answer is yes. And is it because and remember, Heather, you know, this that when we sold to customers 15 years ago, they never really talked to us after that and vice versa because you're expected to stay with these ERP systems forever. So yeah, some percent of their base will move as a result of just this, because it's a lot of money for not getting much, real simple.

[Heather Bellini, Goldman Sachs]

Anything on Workday?

[Mark Hurd, CEO]

Again, I think Workday does, again, my sense of Workday is they do a decent job, an upmarket HCM where they can divorce the HCM buyer from the ERP buyer. When the ERP buyer and the HCM buyer are aligned and combined, they are really in a position with no chance because they don’t have much real financials product. And I know they hype it and they talk about it and all that, but at the end of the day, they're just not competitive. So for us, the market really is for us to keep moving ahead. Our market share must be in cloud financials now, but it must be plus 90%, 92%, 93% and 94%.

So, yeah, do I think we can accelerate? I think the greatest story you can see here is the NetSuite story that we doubled the rate. And if I didn't say enough things about NetSuite, because I'm sure the NetSuite team is listening. Let me say NetSuite, NetSuite, NetSuite. They have just done a fabulous job. And they're doing a fabulous job, not just growing internationally, but growing domestically. A lot of this performance in NetSuite is just pure US domestic performance, more salespeople, more industries, micro industries that we build for, better execution. And so between NetSuite and Fusion, we've just had a really good run. I won't tell you everything's perfect, which is really good news. With these numbers, we can do better. We can do better. And I think we're just getting our stride. So, I feel very good about another.

[Safra Catz, CEO]

Yeah. And as Fusion becomes a higher percentage, Fusion ERP is growing so quickly and it becomes a bigger percentage, it just kind of overwhelms everything else.

[Mark Hurd, CEO]

Yeah. That's the mix change. I mean, that's what you're seeing really in this quarter, is the beginning of the fact that our hot, rapidly growing products are now bigger than some of those products again, like SUN, SPARC that are in decline. And, we kind of cross -- those two curves have crossed one another. Yeah. Fusion is an international product in a lot of countries and now we’ve moved NetSuite to a lot of countries. And quite frankly, we haven't really started to get the benefit of that just yet. So that's going to kick in this fiscal year and that will have a big impact.

[Operator]

Our next question is going to come from the line of Phil Winslow, Wells Fargo.

[Phil Winslow, Wells Fargo]

Yeah. Thanks for taking my question and congrats on a great finish to the year. A lot of time has been spent on platform and applications, wanted to focus on infrastructure and hope you can give us an update on just what you're seeing on the Oracle Cloud infrastructure, to, what's the feedback from customers? How do we think about sort of where we are on the adoption lifecycle?

And then one question I get from investors is, how should we think about OCI2 relative to the announcement with Microsoft, if there's any sort of impact there?

[Mark Hurd, CEO]

Well, OCI2, we had two infrastructure products. We had, what we now call OCI classic, which really is frozen, and we moved -- moving all of our customers, almost moved all of our customers, to our Gen2 cloud. Our Gen2 cloud is dramatically better I think not only than our Gen1 cloud, but other people, existing clouds. We have, without going into a lot on this, we have an architecture, where we have two separate computers and each computer that you went, if you will. And we have, the Intel computer that you read, and then we have another processor with separate memory that has all of our powered control code.

So that's very different than Amazon or Google or Azure as an architect, should every single computer in our Gen2 cloud is really two computers, the one that the customer uses, and the one -- and another one that we use to manage the cloud and encrypt the data and encapsulate the messaging and virtualize the messaging and do all of that. It's impossible for a cloud customer to get at our code and hack it. And it's also impossible for our programmers to look at our customers’ data. So we did this, we redid our architecture, because we decided that existing architectures, infrastructure architectures had just too many vulnerabilities.

And so we bit the bullet, said, okay, we're going to freeze. OCI classic, we're going to invest in Gen2 that gives us a much more secure, much more reliable platform, and quite frankly a much faster, it's also much faster, much faster networking, and I'm not going to go into all of that, but this is a huge differentiate between us and everybody else. And customers are beginning to see that, they're beginning to understand the architectural differences, a lot of the world’s security agencies are now coming to us and saying, hey, this looks really good. We're going to go with this, not Amazon or somebody else because of these architectural distinctions.

Also, a bunch of people are running high performance workloads on our cloud, we have a much fancier network, we have RDMA capability built into our network that the other guys don't have, that's because we redid that -- we didn't have in Gen1, we have in Gen2, allows us to run large machine learning workloads, rendering simulations, all sorts of -- high performance computing way better than our competitors. So, there are a bunch of applications we just do better and people are beginning to notice and they're beginning to move and buy.

[Operator]

And our final question for today comes from Raimo Lenschow, Barclays.

[Raimo Lenschow, Barclays]

I wanted to go back to the NetSuite strength, Mark and you talked already a lot about it in terms of geographic and going deep into the industry. But I just wanted to see, like how sustainable is that? Where are we in that innings in terms of going against certain countries or going against certain industries like, is that kind of the initial investment that is coming through now and then we're done or are we on the beginning of a journey here. Thank you.

[Mark Hurd, CEO]

First, Raimo, I think one thing that I would add to Larry’s Gen2 point is customers love Gen2 and it's got a great thing. It works really well. It's reliable. It scales. We're hiring people in our engineering group, continuing to expand. And so just to add to Phil's point, I mean, it is very well received by our Salesforce, our field and it's been fantastic.

On NetSuite, yeah, we're just at the beginning, to Larry's point, we really haven't seen the acceleration internationally that we've seen domestically. So we're adding salespeople internationally. We've done that, we've got some more to do. So, there is growth there. We are adding more countries, there is more to do there and we are adding what we call Suite success, which is where we take an industry, not even an industry, a micro industry. So instead of taking retail, we would take retail bookstores, and campus bookstores, and in universities and we would refine the solution for campus bookstores and then put a consulting offer around it that we would deliver so as a complete one stop shop for the customer. And we're continuing to build those out. So we've increased R&D yet again to do more of those, increased our sales force yet again to get after more customers. And our expectation is that we continue to drive significant growth in NetSuite.

[Ken Bond, IR]

Okay. Thank you, Mark. A telephonic replay of this conference call will be available for 24 hours. Dial-in information can be found in the press release issued earlier today. Please call the Investor Relations department with any follow-up questions from the call. We look forward to speaking with you. Thank you for joining us today, and with that, I’ll turn the call back to Holly for closing.

[Operator]

Thank you. And thank you for joining today's Oracle fourth quarter 2019 earnings conference call. We appreciate your participation. You may now disconnect.