After missing sales targets after a shortfall in the US late last year, SAP appears to be back on form, with its first-quarter results showing sales on target and net profits up 10% on the year.
With net income of 310m euros ($421m), on revenue up 6% (or 11% based on constant currency) to 2.2bn euros ($2.9bn), SAP pronounced itself very pleased with its solid performance.
Software and software related services revenue – what used to be called software license sales and support, plus SAP’s minor subscriptions revenue – was up 9%, or 15% at constant currency rates, to 1.52n euros ($2.06bn). License sales grew 10% to 563m euros, ($766m).
The results were in line with its own and market expectations and enabled the company to talk about delivering its twelfth consistent quarter of double-digit growth as far as software and software related services were concerned.
The Americas region bounced back significantly, said deputy CEO Leo Apotheker and showed a 12% (or 22%o at a constant currency rate ) improvement in software and software related service revenue. There was no material change in the spending environment and no reason to expect one he said.
Explaining the bounceback, he said US sales in Q4 2007 fell short of expectations due slippage in some public service deals which have now come in, and that there was no significant slippage around Q1 deals. He also cautioned about the danger of seeing a pattern on one quarter’s results.
Performance in the region was fuelled by successes in certain vertical industries, primarily public sector, financial services, retail and telecoms, as well as progress within the mid market. According to Ernie Gunst, president of field sales operations in EMEA, the company is gaining strength in the SME sector within the US market. Where the US was heavily focussed on the large enterprise market, it is now ramping up on the SME side, aided by its partner network.
US-based SME activity is behind when compared to the situation in EMEA. In EMEA, due to the nature of the countries, there is a strong mid enterprise economy, said Gunst. The US is behind, not because it is slow, but because it has prioritized in the large enterprise space.
SAP has been investing in the SME space in the US and growth is coming on strongly he said, but Europe is ahead of the curve and has achieved a higher growth rate because of the mid market aspects inherent in its economy.
Total revenue grew by 7% (8% constant currency) in EMEA to 1.1bn euros ($1.4bn) and 4% (11% constant currency) in the Asia-Pacific region. Software and software related services revenue was up 9% (10% constant currency) in EMEA to 752m euros ($1.02bn). In Asia-Pac it increased 4% (10% constant currency) to 197m euros ($268m).
As far as new revenue opportunities were concerned, CEO Henning Kagermann highlighted SAP’s CPM and compliance and risk management products as new revenue drivers, enabling it to penetrate new users both within and outside its existing customer base. He said growth has been significant – in the triple digit range. However, it should be noted that this will be coming of a low starting point.
As far as the planned mid market A1S product is concerned, it is due early in 2008, but customers and prospects are being given sneak previews in order to gain feedback, and it will be shown to select groups at the Sapphire user conference in Atlanta next week. Of the 300m to 400m euro ($408m to $544m) A1S investment the company announced last quarter, about 23m euros ($31m) has been spent, but this will ramp up over this year before expanding in 2008. According to Henning it is being spent on marketing and setting up the volume business infrastructure, not product development.
SAP is maintaining the full 2007 year outlook it gave in January which was based on a 12% to 14% increase (on a constant currency basis) in software and software related service revenue compared to 2006 which delivered a 12% increase, and an operating margin in the range 26% to 27%, down from the 27.5% of 2006. The lower operating margin is primarily due to the increased A1S investment.