Bloomberg News

SAP to Meet Top End of Forecast as Sales Growth Beats Oracle

July 27, 2011

(Adds new product sales target in seventh paragraph.)

July 27 (Bloomberg) -- SAP AG, the largest maker of business-management software, said it will reach the top end of its profit forecasts this year after winning market share last quarter on demand for mobile and data-analysis offerings.

Second-quarter software license sales rose 26 percent, beating estimates and rival Oracle Corp. Full-year operating profit, based on non-international financial reporting standards, will be at the high end of a previous forecast range of 4.45 billion euros ($6.5 billion) to 4.65 billion euros, excluding currency swings, SAP said yesterday.

“Oracle has been outgrowing SAP for some time,” said Ross MacMillan, an analyst at Jefferies & Co. in New York who recommends holding SAP and buying Oracle shares. “The question is, do we have the start of some kind of market share change? It definitely looks like this quarter in particular they outgrew Oracle.”

Co-Chief Executive Officers Jim Hagemann Snabe and Bill McDermott, whose contracts were extended to 2017 this month, aim to boost SAP’s annual revenue to 20 billion euros by 2015, driven by mobile products, services and the real-time analytics technology Hana. Oracle reported a 19 percent license sales gain for its fourth quarter ended May 31.

Shares Surge

SAP, based in Walldorf, Germany, rose as much as 2.8 percent to 44.69 euros in Frankfurt today, adding to a 3.6 percent gain yesterday after releasing second-quarter results. The stock was up 2.7 percent as of 9:33 a.m. The shares have gained 17 percent this year, giving the software maker a market value of 54.8 billion euros. Oracle slipped 0.2 percent to $32.15 in Nasdaq Stock Market trading yesterday.

SAP predicts to sell more of its core enterprise software products as a result of introducing new products.

“Mobility brings the software to all employees and to our customers’ customers, which means a drive of users even in the core products,” Snabe said on a conference call last night, adding that many companies investing in Hana are also upgrading their business suite software. “We are targeting at least 100 million euros in sales in these new categories” this year, Snabe told Bloomberg Television today.

Non-IFRS software and software-related services revenue growth will reach the top end of a range of 10 percent to 14 percent at constant currencies for 2011, SAP said. The measure grew 20 percent in the second quarter. The company is taking market share from its main competitors and the momentum from the first half is continuing in the second half, Snabe said.

Pipeline

“The pipeline for Hana is the biggest in the history of SAP,” McDermott said in an interview in New York yesterday. According to Snabe, the Hana pipeline currently stands at 400 million euros. Abbreviated from High-Performance Analytic Appliance, the in-memory computing product is designed to speed up analysis of business data. It comes on servers from companies such as Hewlett-Packard Co., International Business Machines Corp., Dell Inc. and Cisco Systems Inc.

“Hana will prove to be a significant differentiator in the sustainability space, where SAP is already a key player,” Adrian Bowles, an analyst for Constellation Research Group, said in an e-mail. “As the market for energy and carbon management solutions matures, customers will look to big data and analytics to uncover additional savings and monetization opportunities. This bodes well for SAP in the next three to five years.”

IPad Push

McDermott said SAP is also benefiting from the use of Apple Inc.’s iPad tablet computer among executives who can have mobile access to real-time business analytics.

“By 2014, 6.5 billion workers worldwide will be on mobile devices,” he said. “What you are seeing is a generational change.”

SAP, which makes payroll management, business intelligence tools and software that helps companies reduce their carbon emissions, also provides the software for the order fulfilment behind Apple’s iTunes download system.

During the quarter, SAP won the U.S. National Hockey League team San Jose Sharks as a user of its on-demand software Business ByDesign, while Colgate-Palmolive Co. and Lenovo Group Ltd started using the Hana in-memory technology.

Second-quarter net income rose 20 percent to 588 million euros, compared with the 586 million-euro average estimate of 17 analysts compiled by Bloomberg. Software license sales climbed 26 percent to 802 million euros, topping the 734 million-euro average estimate.

‘Let’s See’

“It is nice that SAP is so confident in outperforming their 2011 target, but we should all keep in mind that they do a major share of their business traditionally in the fourth quarter, so let’s see,” said Tobias Ortwein, senior vice president of Pierre Audoin Consultants in Munich.

SAP’s net income trailed estimates for the past seven quarters, according to data compiled by Bloomberg. After announcing its first-quarter earnings on April 28, the shares fell 5.7 percent, the most in 1 1/2 years.

Global spending on software for companies may grow by 9.5 percent this year, according to Gartner Inc, with a slowdown in coming years. SAP needs to grow nearly 10 percent a year to reach its 2015 target of 20 billion euros in sales. It reported 2010 revenue of 12.5 billion euros.

During the second quarter, SAP reached cooperation agreements with Verizon Communications Inc., Dell and Amazon.com Inc. to sell mobile products, Hana, and software as a service, respectively.

While Oracle has spent more than $42 billion on takeovers since the beginning of 2005, SAP has made only two large acquisitions in its 39-year history: Sybase Inc., which SAP bought last year, and business-intelligence company Business Objects SA acquired in 2007.

“Our key focus will be organic growth,” McDermott said. “If it moves the company significantly forward into a new category that is game changing we will look at it.”

--With assistance from Lisa Rapaport in New York. Editors: Simon Thiel, Kenneth Wong

To contact the reporters on this story: Ragnhild Kjetland in Frankfurt at rkjetland@bloomberg.net; Cornelius Rahn in Frankfurt at crahn2@bloomberg.net

To contact the editor responsible for this story: Kenneth Wong at kwong11@bloomberg.net


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