SAP Profit Up, but License Sales in Americas Slow

Oct 19, 10:17 AM

Current Headlines: By Linda Loyd, The Philadelphia Inquirer

Oct. 19--Software developer SAP AG said yesterday that its third-quarter earnings had risen 10 percent, but that its software-license sales had slowed in the Americas during the period.

The German company, one of the world's largest makers of business-management software, has its headquarters for the Americas and 2,000 employees in Newtown Square.

Net income in the quarter ended Sept. 30 rose to 408 million euros ($578.7 million, or 48 cents a share) from 370 million euros ($524.8 million, or 43 cents a share) a year earlier. SAP reports financial results in euros.

Analysts had expected earnings per share of 46 cents, according to Thomson Financial.

Revenue was up 9 percent -- 13 percent in constant currency, which excludes the impact of currency-exchange rates -- to 2.42 billion euros ($3.44 billion) from 2.21 billion euros ($3.14 billion) a year earlier. Analysts had forecast revenue of $3.39 billion.

SAP also announced that Wal-Mart Stores Inc. would use SAP software as part of its financial-information systems. Financial terms were not disclosed. SAP said it had signed a global enterprise agreement with Apple Inc. in the third quarter.

Software-license sales, an indicator of future maintenance and consulting revenue, rose 11 percent to 715 million euros ($1.01 billion), or 15 percent at constant currency.

Analysts for Natixis Securities North America Inc. noted a "sharp slowdown in the Americas" that was offset by growth in other regions. "Growth seemed to stall in September in the Americas zone," according to a research note.

Software-license revenue in the Americas in the third quarter grew just 3 percent, or 11 percent in constant currency. In contrast, license sales grew 28 percent in the Asia Pacific region and 15 percent in the area including Europe, Africa and the Middle East.

"We continued to report double-digit growth in software and software-related service revenues in each region and additional share gains among core enterprise application vendors," SAP chief executive officer Henning Kagermann said.

In an interview, SAP America Inc. president and CEO Bill McDermott said sales growth in the Americas was "very solid for the 20th consecutive quarter."

U.S. sales of software and software-related services rose 18 percent, in constant currency, compared with a year earlier, McDermott said. Canadian sales were up 25 percent. "The North American continent was very robust," he said.

In Latin America, where growth in the 2006 third quarter was exceptional, the "comparison was tough" in this year's third quarter, McDermott said.

SAP's operating margin, a widely watched measure of its operational strength, was flat in the third quarter at 24.8 percent, in line with the same period a year earlier.

The financial results came days after SAP had announced Oct. 7 it would buy France's Business Objects S.A. for $6.8 billion and expand into the growing area of business-intelligence software -- a $6.25 billion market.

SAP said it would spend up to 400 million euros on marketing and developing a line of Web-based products, its Business ByDesign program, to bring software to small and midsize companies.

SAP said it expected 2007 software and software-related services to reach the upper end of its estimate for growth of 12 percent to 14 percent.

Kagermann declined to make a forecast for 2008, but he said that the market was strong and that he believed SAP could grow at the same pace as this year.

While SAP traditionally has eschewed acquisitions in favor of an organic-growth strategy, Kagermann said in an interview on CNBC that "you can never rule out strategic acquisitions, even not large ones."

SAP shares closed down $1.62, or 2.88 percent, at $54.68 on the New York Stock Exchange.

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