Oracle Q2 2024 Earnings Call Transcript

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Provided by Quartr
December 11, 2023

There are 9 speakers on the call.

Operator

Afternoon. My name is Emma, and I will be your conference operator today. At this time, I would like to welcome everyone to the Oracle Corporation's 2nd Quarter 2024 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.

Operator

End bond. You may begin your conference.

Speaker 1

Thank you, Emma. Good afternoon, everyone, and welcome to Oracle's Q2 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 Investor Relations website. On the call today are Chairman and Chief Technology Officer, Larry Ellison and Chief Executive Officer, Safra Katz.

Speaker 1

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 against placing undue reliance on these forward looking statements, and we encourage you to review our most recent reports, including our 10 ks and 10 Q and any applicable amendments 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 these forward looking statements in light of new information or future events. Call.

Speaker 1

Before taking questions, we'll begin with a few prepared remarks. And with that, I'd like to turn the call over to Safra.

Speaker 2

Thanks, Ken, and good afternoon, everyone. We had another great quarter. When you look at the top of our financial results table, a few things are very clear. The largest number cloud services and license support is now 74% of the revenue And it's recurring revenue and it's the one growing by $1,000,000,000 this quarter. The smaller numbers, Which are not recurring, now accounts for only 26%.

Speaker 2

This is exactly what we told you would happen and it's happening. And as this continues, total revenue growth will accelerate every year. To that point, OCI is now one of the clear drivers of our acceleration. Imagine just 3 years ago, OCI was rarely, if ever mentioned as a viable hyperscale alternative. Of course, we knew what we had built and we kept talking about it and we knew it was only a matter of time.

Speaker 2

And now more industry analysts are catching on to what customers are choosing. For example, just last week, we were recognized as a leader in the 2023 Gartner Magic Quadrant strategic cloud platform services. Our financial results reflect the customers have figured out That by moving to OCI, they really can get more while paying less. On top of that, we are now the default choice for AI workloads given our unique differentiation and price performance capabilities. Why specifically are they coming to Oracle Cloud Infrastructure?

Speaker 2

Well, it's a combination of several things. Creating the 2nd generation cloud enabled us to build a much better, more scalable and more efficient cloud. We understood the limitations of the first generation and engineered very differently. 2nd, we know what it takes Our 45 year history as the leading enterprise software company gives us unique knowledge We've recognized that customers need deployment flexibility rather than just offer public cloud services like our competitors. We are the only vendor which also offers dedicated CloudCustomer, Dedicated Regions, Sovereign Cloud and Alloy, our partner cloud.

Speaker 2

And then finally, our belief in the importance of multi cloud offerings will be industry changing and these collaborations roll out. With all this success and exploding demand, We are working as quickly as we can to get the cloud capacity built out. Now Q2 results. With total revenue at the midpoint of my constant currency guidance and EPS at the high end of guidance. Now as a reminder, currency was one point less helpful than when we gave guidance 3 months ago.

Speaker 2

Total cloud revenue that's SaaS plus IS excluding Cerner was $4,100,000,000 up 25 percent. Including Cerner, total cloud revenue was up 24% and SaaS revenue of $3,200,000,000 up 14%. Total cloud services and license application subscription revenues, which includes support, were $4,500,000,000 up 9%. Our strategic back office SaaS applications now have an annualized revenue of $7,100,000,000 and we're up 19%. Infrastructure subscription revenues, Which includes license support were $5,200,000,000 up 12%.

Speaker 2

Infrastructure Cloud Services revenue was up 50%. Excluding legacy hosting services, Gen2 Infrastructure Cloud Services revenue grew 55% with an annualized revenue of 6,000,000,000 OCI consumption revenue was up 71%. Database subscription revenues, which includes database license support were up 4%, highlighted by Exadata Database Cloud Services revenue, which was up 40% and Autonomous Database up 26%. Very importantly, as on premise databases migrate to the cloud, we expect these cloud database services software license revenues were $1,200,000,000 down 19% in a tough comparison to last year Now shifting to margins. The gross margin for cloud services and license support was 78%.

Speaker 2

This is because of the mix between support and cloud in which cloud is growing much faster than support. Support and SaaS margins are consistent with last year, while IS gross margins improved substantially. While we continue to build data center capacity, gross margins go higher as these new cloud regions fill up. We monitor these expenses carefully Non GAAP operating income was $5,500,000,000 up 7% from last year. The operating margin was 43%, up from 41% last year.

Speaker 2

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. The non GAAP tax rate for the quarter was 19% and non GAAP EPS was $1.34 in USD, up 11% in USD and up 9% in constant currency. GAAP EPS was $0.89 in USD. At quarter end, we had nearly $8,700,000,000 in cash and marketable securities And the short term deferred revenue balance was $8,900,000,000 up 1%. Over the last four quarters, operating cash flow was $17,000,000,000 up 13% And free cash flow was $10,100,000,000 up 20%.

Speaker 2

Capital expenditures We're $6,900,000,000 over the same period as we continue to seek cash flow benefit from our cloud transformation. Our remaining performance obligation or RPO is now over $65,000,000,000 with many in the pipeline. Approximately 48% of total RPO call as we continue to build capacity for bookings and our customers' growing needs. Given the enormity of our pipeline and backlog. I expect CapEx will be somewhere around 8,000,000,000 fiscal year, meaning our second half CapEx will be considerably higher customer facing cloud regions live with 45 public cloud regions around the world And starting next year, customers will be able to run Oracle Database at Azure on OCI inside Azure.

Speaker 2

We also have 10 dedicated regions live and 13 more planned, 9 national security regions and 2 EU sovereign regions live with increasing demand for more of each. And finally, we have 7 Alloy Cloud Regions planned where Oracle partners become cloud providers offering customized cloud services alongside the Oracle Cloud. And of course, we also have so many, many, many cloud of customer installations. The sizing and flexibility The sizing flexibility and deployment optionality of our cloud regions continues to be advantages for us in the marketplace. And finally, as we've said before, we're committed to returning value to our shareholders through technical innovation, strategic acquisitions, stock repurchases, prudent use of debt and a dividend.

Speaker 2

This quarter, we repurchased 4,000,000 shares for a total of $450,000,000 And in addition, we paid out dividends Now let me turn to my guidance for Q3, which I will review as always on a non GAAP basis. If currency exchange rates remain the same as they are now, currency should have little effect on total revenue and EPS. However, the actual currency impact may be different. So because of that, all the numbers I give you are same for constant currency and USD. Total revenues, including Cerner, are expected to grow from 6% to 8%.

Speaker 2

Total revenues excluding Cerner are expected to grow from 8% to 10%. Total cloud revenue excluding Cerner is expected to grow from 26% to 28%. Non GAAP EPS growth is expected to grow between 10% 14% and be between $1.35 $1.39 My EPS guidance for Q3 assumes a base tax rate of 19%. However, one time tax events could cause actual tax rates to vary. Finally, I remain firmly committed to our fiscal 2026 financial goals for revenue, operating margins and EPS growth.

Speaker 2

And with that, let me turn it over to Larry for his comments.

Speaker 3

Thank you, Sakra. The demand for Oracle's cloud infrastructure and generative AI is consistently increasing quarter after quarter. Oracle's total remaining performance obligations or RPO has now reached $65,000,000,000 slightly more than our annual revenue. In response to this sharply increasing demand, Oracle is in the process of expanding 66 of our existing cloud data centers And building 100 new cloud data centers. We have to build 100 additional cloud data centers Because there are 1,000,000,000 of dollars more in contracted demand than we currently can supply.

Speaker 3

Cloud infrastructure demand is huge and growing at an unprecedented rate. In the next few weeks, We expect to sign a couple more $1,000,000,000 cloud infrastructure contracts. Gartner recently named Oracle OCI as a leader in cloud platform infrastructure services. The demand for cloud infrastructure services and new Oracle cloud data centers Is broad based, driven not only by generative AI customers, but also by nation states Buying software and Oracle Cloud Data Centers plus large banks, telecommunications companies and industrial companies Dedicated Cloud Data Centers Dedicated Oracle Cloud Data Centers. And perhaps most interestingly, demand from other hyperscalers and other cloud service providers co locating And connecting their clouds with Oracle Cloud Data Centers.

Speaker 3

Customers don't want clouds to be walled gardens. In the next few months, we will turn on 20 new Oracle Cloud Data Centers, co located with And connected to Microsoft Azure as a part of our joint multi cloud initiative. These 20 new multi cloud data centers We'll house over 2,000 full racks of Exadata database machines Designed to meet pent up demand for the Oracle Cloud database. We are able to build new data centers rapidly And operate them inexpensively because all of our data centers are architecturally identical, highly automated With an identical high performance RDMA network, autonomous services and applications, Oracle Cloud Data Centers Very only by scale. Again, several nation states have ordered multiple sovereign data centers to be built within their country So that they can move their government, healthcare and commercial workloads to the Oracle Cloud.

Speaker 3

These new countries include Japan, Italy, Saudi Arabia, Bangladesh, New Zealand and others. Some of the world's largest banks, telecommunications and industrial companies have also contracted with us To build Oracle Cloud Data Centers dedicated entirely to them, so that they can migrate their workloads to an Oracle Cloud Data Center. These companies include Nomura, Vodafone, Telecom Italia Mobile, Saudi Telecom, A huge Korean conglomerate and a huge U. S. Defense contractor.

Speaker 3

These are but a few examples that demonstrate the diversity Back to you, Ken.

Speaker 1

Thank you, Larry. Emma, if we could please pull the audience for questions.

Operator

Thank Q and A. Your first question today comes from the line of Ben Ritzes with Melius Research. Your line is open.

Speaker 4

Hey, thanks a lot. It's great to be speaking with you this afternoon. Do you mind going through your thoughts on the OCI trajectory from here? And How you feel backlog will play out into revenue? And perhaps you can comment also is the acceleration potential that you guided for due to getting more GPUs and more AI backlog moving into revenue?

Speaker 4

Thanks a lot.

Speaker 2

Larry, you want me to take it or you?

Speaker 3

No. Either one, Safra, you tell me.

Speaker 2

How would I get started?

Speaker 1

Okay. So where

Speaker 2

do we expect OCI to go from here? Frankly, the only limiting factor is our ability to get the data centers handed over and filled up fast enough. This quarter alone, we're talking about 100 of 1,000,000 of dollars that we would have been able to recognize if our capacity What's available? So the reality is as we roll out and we've got just so many moving parts as you can hear from us, We have a lot of capacity coming online. And as you can see in my CapEx guidance, We expect OCI to just grow astronomically, frankly.

Speaker 2

Structure for so much use. And of course, also as more GPUs become available And we can put those in. We have just a really unlimited amount of demand. Larry, I don't know if you want to say anything else.

Speaker 3

Yes. Well, again, in the next few weeks, I mentioned we're going to sign 2 additional contracts right around $1,000,000,000 each. I mean, the backlog is growing astronomically. I think it's the word Safra used and That's accurate. There's no reason why OCI grew 50% this quarter.

Speaker 3

I think OCL is going to get much bigger and actually the growth rate will be above 50%, I believe, as these data centers come online. We think we can build a lot of these data centers very quickly. By the way, again, I emphasize it's not just Gen AI demand. There is huge pent up cloud database demand. There is huge demand overseas for sovereign clouds where people governments haven't been able to move their And a lot of those are government Oracle workloads.

Speaker 3

They haven't been able to move their workloads to the cloud. I mean, there are literally, I don't know 5, 6, 7 large companies in Japan that will be Building at least 2 data centers Oracle data centers each. So Again, the demand is extraordinary. We can build the data centers relatively fast. And I expect The OCI growth rate to be over 50% for a few years.

Speaker 2

Yes. We're not demand limited in any way right now.

Speaker 4

Thanks a lot, Safra and Larry. Appreciate it.

Speaker 2

Sure.

Operator

Your next question comes from the line of John DiFucci with Guggenheim. Your line is open.

Speaker 5

Thank you. Thanks for the question. Thanks, Larry, for the and so for those comments on the future OCI growth. So since Ben asked about the growth and maybe I'll Take a step back on the other part of all this and that's the profit side. Per Larry's comments, you're building out a lot of capacity and Safra's comments agree with that with the CapEx growth.

Speaker 5

But Clay has also spoken about the time it takes to build out Those AI superclusters. And I know that's not the only AI workloads you're doing, but that sounds like some pretty exciting stuff. And it takes time before you get revenue. I realize you're also seeing ramp up of those, what I'll call, core OCI deals like Uber, And you actually get revenue from them over time. But how should we think about cloud gross margins Over time in this context with both those things, there's a lot happening here.

Speaker 2

Yes. And I'm really glad you asked. I'm really glad you asked because One of the lines that we show you, even though I give you more detail is, I show you a number that is a mix Because of the structure of the way it works and because we are at such a large scale. But the reality is that our cloud businesses are also very profitable. Our SaaS business our SaaS cloud business It's very profitable and our IS, our OCI business is improving profitability as it grows.

Speaker 2

And so the target gross margins for it are much higher than I think you expect because you're probably comparing it to some of the more pure play cloud folks Who somehow don't end up making as much money in all of this. As we grow, Our gross margin percentage goes up. So yes, we make A lot of investments and we'll be making a lot of investments, but our profitability continues to go up Because once the date the worst moment is at the moment where the data center is full of computers And you don't have any tenants that first day, but that's not actually how we work. Yes, we have the floor space, But we grow in pieces, unlike some of the others that they have to do a full out build out And put everything there before they have a penny of revenue. That's not how we work.

Speaker 2

We and more and more of our So we start small and build up and that allows us to match our spending With the revenues much better. And that's because we have that engineering deployment flexibility that the 1st generation folks don't have. I don't know, Larry, if you want to add anything to that?

Speaker 3

Yes, I do. I think one thing is very important. We're much more highly automated than the older data centers. So, to give you an idea, Oracle Cloud, to run Oracle Cloud, we have to keep track of all of our customers, how much they're using. We have to have A variety of databases and applications that run the cloud.

Speaker 3

Those databases are all the autonomous database. We have no labor associated with those databases. It's all completely automated. Our installations, when we bring up a new cloud, you plug it in and the process of bringing it up is largely automated. There aren't lots and lots of people in the data center to bring it up And there are certainly aren't lots and lots of people in the data center to run it every day.

Speaker 3

We focus on autonomous services. Our Linux, our operating system is fully autonomous. There's no labor associated with running it. There's certainly labor associated with building the software, but not running the software. It doesn't cost us more to run 100 data centers than it costs us to run 10 in terms of DBAs or people running Oracle Autonomous Linux.

Speaker 3

So we have a very different model than our old data centers or our competitors' data centers. We can run these things. We can bring them up relatively quickly and we can run them very inexpensively and efficiently. One last thing about being autonomous, the fact that it's automated. There are far fewer errors and there are far fewer security vulnerabilities because the system It's completely self driving.

Speaker 5

If I might, Safra, go back to something you said. Is it fair to assume that OCI gross margins have consistently grown over time quarter to quarter. Okay.

Speaker 1

Yes. And then as it Grown a lot.

Speaker 5

Grown a lot. Okay. And then finally, What Larry just said about the database, Safra, I've heard you say at times, we're at the beginning of the beginning Of the transition of the database to cloud. So I know you have database and cloud today, but that migration of the on prem, that's still Still to come, pretty much.

Speaker 2

Yes, it is really still to come. It is we're talking about tens of 1,000,000,000 of dollars when it comes over. So we it's starting to come, but we haven't been in the place to receive it all on mass And customers have to get comfortable with it. And also multi cloud has to really roll out and that's Going to be another piece of it. So customers are going to have so many excellent choices.

Speaker 2

They can go in the public cloud, they can go in OCI, They can go in their cloud customer. They can go in OCI at Azure is one possibility. So there's just it is the absolute beginning Because remember, the Oracle database is not a toy. It's a mission critical system. If it just disappeared at companies, the whole planet would come to a standstill.

Speaker 2

And so this is coming and it's just The beginning. So you see what's going on with OCI. No one believed us. This was possible. Now here we're at.

Speaker 2

And then right behind it is going to come the database and that's going to be something.

Speaker 5

And for Larry's comments and I'll stop talking, but for Larry's comments, The database gross margins, given the autonomous nature of it, we should expect that to be different than the OCI Core Infrastructure as a Service gross margin.

Speaker 2

Yes, absolutely. Database?

Speaker 3

Yes, the autonomous I don't want to go into detail, but the autonomous database is 1 autonomous. There's no labor associated with it. But it's also the only database that's fully elastic. In other words, if you're not using it, no one's using it. I mean, there are no cores, there's no cores occupied.

Speaker 3

It goes back into the pool. So if you as a customer aren't doing something with the database, literally no cores are occupied. It's very different than an Amazon database where you allocate. I always need 64 cores or 64 processors to run my database and that's 7 days a week, 24 hours a day. We only charge you for what you use when you're using it.

Speaker 3

We only consume and what you use when you're using it. Otherwise, it goes to other customers. It's totally different. That allows us to have dramatically higher gross margins.

Speaker 5

Thank you very much. Sorry for the several part question, Thank you.

Operator

Your next question comes from the line of Mark Moerdler with Bernstein. Your line is open.

Speaker 6

Thank you very much for taking the question. I really appreciate. I want to change gears a little bit and turn to Surna, Which people don't really focus on that much. Surna license revenue has been down likely in preparation for customers shifting to SaaS, But Oracle does not yet have a full multi tenant scalable Surna SaaS solution. So what I'd like to ask is Couple of parts.

Speaker 6

How should we think about the timing of one, the availability of

Speaker 3

That's not correct. So Cerner has several pieces. And I believe about half the customers will be moved, half of the millennium customers. You can think of Cerner as just automating hospitals like Epic. And that's a product called Millennium and about half of those customers will move to OCI by February.

Speaker 3

Apple, all existing customers will be in Oracle OCI. But we've also developed something that began at Cerner and we have Finished. Now, we completely rewritten it pretty much well, we're in process. We will finish next calendar year. But It is largely rewritten and available right now, something called our health data intelligence platform.

Speaker 3

And it was known as Earnest Healthy Intent and that's for public health. That's for population scale public health management. Again, it's sold to U. S. States.

Speaker 3

It's sold to Australian states. It's sold to European countries. It's for managing population health. Remember during COVID when we didn't know New York thought they were running out of hospital rooms, but they really weren't, but no one knew because no one kept track Of our inventory of hospital rooms. There's no national view.

Speaker 3

No one knew how many people contracted COVID yesterday. We didn't have that national view. We have that national view. It is fully SaaS and it is available right now. So Some of the pieces some of the Cerner pieces are coming online, other Cerner pieces are moving more gradually, But they're all going into OCI.

Speaker 3

And they are all very quickly moving from a license

Speaker 6

subscription basis. So that's very helpful. So that's so to answer the question I was asking was, how should we think about the timing of the transition? Millennium, you're saying, is going to be an OCI. Is that going to be a fully SaaS version?

Speaker 6

When will the rest of the solutions be fully SaaS? And how should we think about the revenue lift As the license and maintenance moves to the cloud to SaaS.

Speaker 3

So it will be fully in OCI and SaaS, But it will not be the new we are rewriting we are replacing Millennium a piece at a time, not a big lift and shift, But we are upgrading and modernizing Millennium a piece at a time and different pieces will be available starting next year. And so Cerner customers will be getting new features and capabilities as a part of the Millennium as Millennium moves to OCI. And again, Half the customers will be in OCI by February. So we're making a lot of progress. At the same time, we're adding a lot of new products to Millennium, Like the public health products, but we're also adding much of new products for pharmaceutical companies.

Speaker 3

We're adding additional products for hospitals to keep track of their inventory, for hospitals to manage their workforce. Really what we think of is our health division in Oracle Including insurance companies, providers, including ambulatory clinics and hospitals, pharmaceutical companies, research companies, And public health departments and national governments and state governments. So we are we have products For the entire healthcare ecosystem, which is a much larger footprint than Cerner ever had. So We are going after a much larger market than Cerner was. So we expect Cerner to be a growth story.

Speaker 3

I guess that's what I'm getting at.

Speaker 6

Right. That's where I'm going with the question.

Speaker 2

Yes. So let me just tell you, I think for the year, for the full fiscal year, Cerner will be sort of negative one to two points, but that will be It will end this fiscal year and from then on, it will be a growth story. So it will no longer be a drag on Oracle growth. Okay?

Speaker 6

Perfect. Thank you so much. I really appreciate it. It was very helpful.

Operator

Your next question comes from the line of Siti Panigrahi with Mizuho. Your line is open.

Speaker 7

Thanks for taking my question. Larry and Safra, many mission critical workloads Still run an Oracle database and you have a sticky mentor on Savneet's team. And we expect Oracle will start migrating those database workloads to OCI, which will bring 3x revenue uplift, which you call even the 3rd leg of cloud growth. You also have now OCI inside Azure Data Center. So my question is, How does this being multi cloud change your outlook for Oracle Database?

Speaker 7

And what are you hearing from your database customer in terms of their comfort and preparedness to move their Oracle database to the cloud, either OCI or Azure.

Speaker 2

Larry, why don't you start with this? No, yes, I do. You go.

Speaker 3

Okay. Okay, thanks. Our customers are very happy with the idea. Remember, Oracle started as one of the first databases that ran everywhere. We ran on IBM mainframes.

Speaker 3

We ran on personal computers. We ran on digital equipment, if you remember them, mini computers On a broad and HP mini computers. We ran on every operating system on every computer. Now in cloud, they're very happy to see That they can not only get the Oracle database at OCI, they can also get the identical capability from Microsoft. Microsoft, we are building data centers for Microsoft inside Azure.

Speaker 3

And Microsoft, it wasn't us that decided 2,000 was the 2,000 was the right number of Exadata machines to install in those 20 data centers. That was Microsoft. The demand is enormous. They want the same our customers want the same flexibility they've always had with Oracle. They want to use Oracle.

Speaker 3

They want to transition. But if they're using the Microsoft Cloud, they want to run the best and latest and greatest version of Oracle in the Microsoft Cloud. They want to do that in other clouds as well. Some of them, it's very important to have it in Japan, for example. It's very important for some of that data remaining in Japan.

Speaker 3

One of the things the Oracle database does is it runs The Tokyo Stock Exchange and it does that in a dedicated data center run by Nomura Research who supplies financial services and Oracle Cloud, Oracle Gentoo Cloud Services to the Japanese market. There are a number of other partners in Japan that are going that same direction. So they used to in Japan, they used to buy the Oracle database From Nomura, where they used to buy it from Fujitsu, where they bought it from Hitachi, or they bought it from NEC. They wanted that Oracle database. It is quite natural for all of those companies to build their own, have their own dedicated regions Of OCI and sell to their and support their customers out of those regions.

Speaker 3

That's the flexibility we allow that's something that nobody else can do. We can build these regions for our partners. We can build these regions for sovereign states. We can build these regions for large companies that want to have that don't want their data They want it to be theirs and theirs alone. We can do that.

Speaker 3

Nobody else can.

Speaker 1

Next question, please. Thank

Speaker 7

you, Larry.

Operator

Your next question comes from the line

Speaker 3

Let me summarize. That means literally any way you want to get to Oracle, Any way you want to get Oracle, you will be able to get it. It will be a little bit back to the future. And we think the impact on demand On database demand, we're seeing it already. Let me close with 2,000 Exadata Racks.

Speaker 3

That's a stunning number in terms of how many customers you can put on that. That's tens of thousands of customers you can put on that much hardware.

Speaker 7

Thanks, Larry, for the color.

Speaker 3

And that's Microsoft alone. Okay.

Operator

Your next question comes from the line of Alex Zukin with Wolfe Research. Your line is open.

Speaker 8

Hey, guys. Thanks for taking the question. I wanted to ask around some of the GenAI functionality inside of the applications Oyo, specifically Fusion and NetSuite. Any update or uptick that you're seeing or can share around some of your partnerships around Coke here? Maybe any early feedback from the field that informs incremental value capture, whether or not it's starting to resonate either in the form of increased migration activity, increased market share gains or increased monetization opportunities around the application portfolio.

Speaker 3

Yes. Well, we're using it every place. Perhaps the most stunning is our Nutella again, I mentioned it and then it's Cerner Earlier that we're doing a lot of things that Cerner never did in what is now called Oracle Health. One of those things is our new telecommunication module summarizes a consultation between a doctor and a patient and writes the doctor's notes for the doctor automatically. In fact, for the first time, We've done it.

Speaker 3

We now have our large language model generating the summary without a scribe that the doctor can edit in a couple of minutes. So it's actually succeeded in doing one of the very hardest tasks we assigned it. And of course, we're using it in all and everything from as simple As doing product descriptions or job descriptions, all of those, you've read about all of those. We've actually got those implemented and are delivering those to customers. But even in the most challenging areas, in drug design, we're having success with pharmaceutical companies.

Speaker 3

But with actually writing the doctor's notes without a scribe has shocked a great many people And well, another area in terms of diagnosing cancer from biopsy, just biopsy images, Being able to do that very, very quickly where the patient knows weeks Sooner than they would otherwise, and they get the news weeks sooner from the just the immediate AI processing of the biopsy image. They could find out weeks sooner whether they have to go on chemotherapy or whether they're cancer free. And we're doing that with an Israeli partner called Imaging. So, no, we're seeing a huge uptake of this technology, everything from complex healthcare and health science to more mundane tasks that you find throughout an enterprise, But still very important in making your employees and your company more efficient and more competitive.

Speaker 8

Got it. And then from a monetization standpoint, do you is this monetizing in a copilot way, similar to Microsoft? Or how do you envision ultimately seeing some of the incremental value capture inside of the model.

Speaker 3

Well, we think inside of Bill, remember we're a little bit different than Microsoft. We have a lot more enterprise applications, for example, in healthcare, In running we run clinical trials. We run hospitals. We run ambulatory clinics. We have diagnostic databases for image processing databases, Conventional blood testing databases, all of those.

Speaker 3

So our monetization is really At the highest end of the value chain, which is we actually supply the application with our partner that does cancer diagnosis, that does the doctor's notes, That does the doctor's orders, that actually automatically generates the prescriptions, that reminds the patient to take the subscription, so you get compliance. Right now, without I don't want to spend too much time on it. Right now, doctors don't know if patients have refilled their prescriptions. The doctors aren't notified and the patients aren't notified, reminding them. We're doing all of that.

Speaker 3

We're doing a bunch of things with and that's the high end. That's a high value end of AI when you're preventing someone from being rehospitalized, which has a huge cost In terms of human suffering and money.

Speaker 2

Sure. Because one of the unique capabilities we allow is for customers when they use our product To basically use their private data in some of these models for them to learn, but then to ultimately keep control of their data. And this is applicable in many, many different types of applications and this is a service we provide in addition. So there's just a lot. Yes.

Speaker 3

Stephan is making a very good point in that we have our own applications in healthcare, but we have partners And other companies that come to us to use our AI to enrich their applications. And we keep their data private And allow them to enrich their applications. That company I mentioned earlier, Imaging, that's not our application that does the cancer diagnosis. That's an Israeli company that's doing that, but they're using our AI to develop their healthcare application. So in the and there so we monetize through imaging, enabling them to build their AI application.

Speaker 3

And we also build a lot of our own. So of course, Zephyr is right. It's a combination of the 2.

Speaker 8

Okay. Perfect. Thank you, guys.

Speaker 2

Thank you.

Operator

Your last question today comes from the line of Brad Zelnick with Deutsche Bank. Your line is open.

Speaker 1

Great. Thanks so much. Larry, it's taken Oracle several years to reach 66 cloud data centers and you're now talking about plans to build 100 new ones, Which frankly seems very ambitious. What is it that you're seeing that maybe we don't see? And then related, Perhaps Safra, if you could speak to the capital requirements and timeframe for that, especially in light of CapEx this quarter that was a bit less than we had expected.

Speaker 1

Thank you.

Speaker 3

Well, okay. How about Microsoft puts an order for 20 in an order for 20 cloud data centers. That's what we're seeing. When one company, as you say, we have 60 by the way, that's a little bit misleading. That's not quite right.

Speaker 3

I mean, we have 66 cloud regions And we sometimes use those synonymously. They're not always they don't data center and regions don't necessarily translate 1 to 1. But The yes, when someone comes along and orders 20, then That creates a lot of opportunity for us to build more data centers and get more OCI customers Because we're building OCI data centers inside of the Azure cloud. So those are the things we're seeing. We're building our own public regions based on direct customer demand and then we're building partner regions Like the micro like the 20 data centers for Microsoft.

Speaker 3

The combination of the 2 adds up to 100.

Speaker 2

Yes. And also one of the things is In that number, it doesn't include the many, many clouded customers, which started small and now companies have decided they want their own region. So they had a CloudCustomer, which is a smaller and they decide, No, no, no. Now I want a dedicated region of my own. I get it.

Speaker 2

This is working. I've saved millions, tens of millions, sometimes 100 of millions. Now I want my own. Also, Really, it is absolutely true. We did not bring up as much capacity As we could have used this past quarter, because we had to make some audible calls on the field to decide how to allocate, whether to build something small, which was available, which I could have recognized revenue in right in the quarter or instead to go much bigger And to wait until some larger capacity was going to be available to hand over to me.

Speaker 2

So as I think I've hinted and we're talking about demand, Had we had capacity this quarter in the 100 of 1,000,000 of dollars more That was just sitting there waiting to take it and we have made some deployment choices because We need more and we need it bigger. Instead of taking small pieces or smaller pieces, we decided to focus on bigger parts and try to also treat our customers fairly and work with them to meet their needs.

Speaker 3

Let me give you one example of that, what Safra is describing We got enough NVIDIA GPUs for Elon Musk's company XAI To bring up the first version, the first available version of their large language model called GROC. They got that up and running. But Boy, did they want a lot more GPUs than we gave them. We gave them quite a few, but they Wanted more and we are in the process of getting them more. So the demand, we got that up pretty quickly.

Speaker 3

They were able to use it, but they want dramatically more as there is this gold rush towards building the world's greatest large language model. And we are doing our best to keep give our customers what we can this quarter And then dramatically increase our ability to give them more and more capacity each succeeding quarter.

Speaker 2

Thanks very much.

Speaker 1

Thank you, Brad. A telephonic replay of this conference call will be available for 24 hours Investor Relations website. Thank you for joining us on the call today. And with that, I'll turn the call back to Emma for closing.

Operator

This concludes today's conference call. Thank you for attending. You may now disconnect.

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