Oracle Corp Japan
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Q1-2026 Earnings Call
AI Summary
Earnings Call on Sep 25, 2025
Cloud Growth: Cloud revenue rose by 37.2% year-on-year and 12% quarter-on-quarter, with no one-time factors driving this acceleration.
Total Revenue: Oracle Japan posted record Q1 revenue of JPY 66,275 million, up 3.7% year-on-year, led by strength in cloud services.
Profit Decline: Operating income and net income fell by 4.8% and 3.7% respectively, mainly due to weakness in the high-margin software license business.
Guidance Maintained: Management reaffirmed full-year guidance for both revenue and EPS.
Cloud Momentum: Infrastructure and SaaS growth remain robust, with momentum expected to continue through the fiscal year.
Oracle Alloy: Contribution to cloud revenue from Oracle Alloy is expected to begin at the end of FY26, with significant acceleration in FY27.
Rising HR Costs: Personnel expenses increased due to salary hikes, higher costs for new skilled hires, restructuring, and increased stock compensation tied to a rising share price.
Cloud services, particularly Oracle Cloud Infrastructure, drove strong revenue growth with cloud revenue up 37.2% year-on-year and representing 29% of total revenue. Management emphasized broad-based momentum across both infrastructure and SaaS offerings, and sees this trajectory continuing through the fiscal year.
Despite record quarterly revenue, operating income and net income declined due to softness in the high-margin software license business. Management expects license revenue to recover in the coming quarters, which could help profitability.
HR expenses increased significantly even though headcount did not rise, driven by salary increases, higher costs for incoming skilled employees, restructuring expenses, and higher stock-based compensation related to the rising share price.
Management maintained its full-year guidance for both revenue and EPS. They anticipate continued strong cloud momentum and a rebound in software license revenue during the rest of the year.
Oracle Alloy is expected to start contributing to cloud revenue at the end of fiscal year 2026, with a more substantial impact anticipated in fiscal year 2027 as consumption ramps up.
Oracle is supporting AI adoption in Japan through initiatives like the new Japan operations center and highlighted customer examples leveraging Oracle's AI and cloud offerings to drive efficiencies. The company is also facilitating access to leading AI models via their infrastructure.
Oracle Japan continues to expand its presence across various industries, providing mission-critical systems in public sector, manufacturing, finance, education, and logistics, with customer wins including Kubota, Yamato, Toyo University, and AEON Housing Loan Service.
[Foreign Language] Now I'd like to turn this call over to KK, Senior Vice President, Finance, JPAC and Japan CFO.
Thank you, Nishio-san. Good afternoon, everyone, and welcome to Oracle Japan's First Quarter Fiscal Year 2026 Earnings Conference Call. We had another excellent performance in this Q1 attributed to growth of cloud services, especially Oracle Cloud Infrastructure. The demand is substantial for our cloud business, which has led to acceleration in revenue growth.
In Software License business, we changed our list price in Q2 '25. Therefore, we anticipated that there would be a reactionary decrease due to rush demand in Q1 of last year. We announced the opening of Japan operations center to accelerate innovation in AI adoption by Japanese companies and organizations and to accelerate the adoption of sovereign cloud.
This center supports Oracle Alloy partner companies by providing operational expertise and technical assistance, enabling them to deliver a broad range of cloud and AI services and expand their business.
Regarding Oracle AI World in Las Vegas from October 13 to 16, starting this year, it will be called Oracle AI World. The new name emphasizes our commitment to help customers and partners take advantage of latest AI innovations to move faster, reduce costs, make more informed decisions and build smarter businesses. You can also participate online via streaming all live events.
We continue to add a lot of customers in various industries like public sector manufacturing, financials and information technology. Let me give you a few examples. Number one, Kubota provides products and solutions developed and produced in over 120 countries and regions worldwide across the fields of food, water and environment.
When advancing water environment projects across 3 Southeast Asian countries, information was previously managed in a decentralized manner using spreadsheet software and paper creating a risk of human error. Additionally, there was a need to strengthen internal controls and streamline redundant tasks. It was difficult to grasp information on profit and loss project performance in real time, posing challenges for rapid management decision-making.
To solve these issues, Kubota selected NetSuite, a solution that could be implemented quickly and cost effectively while offering high adaptability to change. Number two, Yamato Contact Service, which handles Contact Center and BPO operations for the Yamato Group has streamlined its customer support operations by leveraging Oracle Cloud Infrastructure generative AI service and Oracle Database 23ai.
Specifically in e-mail support operations, they have successfully increased the match rate for proposing FAQs to self resolvable inquiries to 85%, roughly double the previous rate. This has enabled Yamato to automatically process and reduce approximately 20% of e-mail inquiries relating to TA-Q-BIN delivery operations using AI.
Number three, Toyo University. Looking ahead to its 150th anniversary in 2037, Toyo University is formulating a vision for its future as a comprehensive academic institution. To achieve this, a financial accounting system, enabling data-driven management decisions and financial operations was essential. While previously using a custom developed system, the university adopted Oracle Cloud ERP to reduce operational and maintenance burdens and transition to a sustainable, highly flexible system.
Oracle Cloud ERP is valued for its extensive implementation track record at universities, both domestically and internationally and its ability to loosely integrate with university-specific peripheral systems via APIs and its flexibility to accommodate future expansion.
Number four, AEON Housing Loan Service, AEON faced challenges in its traditional on-premise environment including end-of-life hardware maintenance, delays in applying security patches, difficulties in flexible resource allocation and the need to strengthen its disaster recovery configuration. Against this backdrop, following a feasibility study and POC for cloud migration using Oracle Cloud Lift Services, they decided to proceed with a full-scale migration to Oracle Cloud Infrastructure.
With support from Oracle Consulting Services, they achieved full cloud migration in a short time frame. This was made possible by high affinity between our on-premise Oracle database environment and Oracle autonomous database on OCI, coupled with a highly reliable project structure.
This is just to give you a sense of the broad outreach in the market that we have with our different products and services and to underline Oracle's presence in most mission-critical systems, applications and industries.
Let me move to the numbers. We have made some changes to the face of our income statement to better reflect how we manage the business so you understand our cloud business dynamics more directly.
Total revenue was JPY 66,275 million, growing at 3.7% compared to previous year, driven by strong growth in our cloud revenue. Total cloud revenue was JPY 19,097 million, up 37.2% now represent 29% of the total company revenue. Infrastructure consumption revenues continue to have a strong momentum which includes autonomous database.
Operating income was JPY 21,128 million, decreasing 4.8% and net income was JPY 14,805 million, down 3.7%. Total revenue again hit a record high for the first quarter. The profit categories were down mainly due to decline in high-margin software license business. We will maintain our guidance for revenue and EPS communicated at the start of this fiscal year.
Thank you very much, and back to Nishio-san.
[Foreign Language]
[Foreign Language] [Interpreted] First question is from Kikuchi-san of SMBC Nikko. There are 2 questions, but we will go one by one. First question. This is about the revenue of cloud service in the first quarter. Year-on-year, it grew by 37% and Q-on-Q, it grew by 12%. It appears to have grown significantly Q-on-Q basis, but is there any onetime factor?
As I mentioned in my opening comments, our infrastructure revenues, especially infrastructure [Technical Difficulty] Hello. I'm back. Sorry, I think I got disconnected.
[Foreign Language]
So did you hear my answer to the question? Or should I start again?
You were cut off. Please start over again.
Okay. Let me talk about the cloud revenue. So I think we will -- we saw very strong momentum, as I said in my opening comments. This is across all product offerings, especially infrastructure and even SaaS revenue growth was strong. So -- and I think there is no one-off factor affecting this. So we should see strong momentum continuing into the fiscal year.
[Foreign Language]
[Foreign Language] [Interpreted] And second question from Kikuchi-san. This is about HR expense. The growth is quite significant. However, in terms of number of headcount, it is not increasing. So what are the reasons behind it? And if you could share with me the outlook for second quarter and onwards, that would be helpful.
Yes. Regarding the people expense, we -- there are a few factors that is affecting the increase. There was a salary increase last year that was provided. We are also constantly changing and churning our people. So new people come at higher costs, with the right skill set, and that's the whole intention of the organization.
And we also had some restructuring expense that got into the P&L. And also a little bit of stock compensation expenses got affected because the stock price also climbed significantly. So these are some of the factors that are contributing to the personnel expense.
The second question on the outlook for Q2 and beyond. As I said, for the full year, I am maintaining my guidance. We should see some bounce back in license. I would expect it to bounce back for the remainder of the year. And we'll continue to see some good momentum on our cloud revenues. So the year looks very strong for us.
[Foreign Language]
[Foreign Language] [Interpreted] We have questions from Noda-san of CLSA Securities. This is about Oracle Alloy, when will it start to contribute to the revenue of cloud service?
Sorry. Sorry, I was on mute. So all the alloys that we have booked, and we have more alloys in our pipeline that we are working on. Some of it will start showing in our numbers towards the end of this fiscal FY '26. But the consumption will really accelerate. The alloy consumption will really start accelerating more in FY '27.
[Foreign Language]
[Foreign Language] [Interpreted] Second question from Noda-san of CLSA Securities. OpenAI and Meta in the U.S. are starting to use OCI for their infrastructure to do inferencing. So -- and if these tech companies wishes to -- wish to expand their AI service in Japan. And if they start to use OCI in Tokyo region in order to ensure secure their local resources, will this become a potential upside from Oracle Japan?
So this is kind of a little -- I appreciate the question, but at this point in time, it's a little hypothetical for me. It all depends on how we contract it and what exactly the nature of work would be and whether it's an Oracle Japan contract or not. But having said that, what we have seen globally, and you -- if you have followed Oracle Corporation's earnings call, we -- a lot of the biggest training model -- or large language models do their training on by default on Oracle Cloud Infrastructure.
We also have enabled OCI to offer these large language models to our customers as a choice. For example, our customers can use our generative AI service and use any of these LLMs, whether it's OpenAI or Grok or Llama to further their AI capabilities for their organizations. So there will be some linkages. And of course, it's going to be beneficial for Oracle Japan also. But I don't think I can answer your specific -- I don't -- I have an answer to your question specifically on this one. Thank you.
[Foreign Language]
[Foreign Language]
[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]