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SAP Climbs as Net Rises on Lower Oracle Provision, New Products

October 26, 2011

Oct. 26 (Bloomberg) -- SAP AG, the largest maker of business management software, reversed losses in Frankfurt as its co-chief executive officers forecast higher sales of mobile products this quarter.

“Our innovations are now accounting for almost 10 percent of our revenue,” Co-Chief Executive Officer Jim Hagemann Snabe said on a conference call today, referring to mobile applications and the in-memory technology Hana, which was fully released in June.

Hana sales reached 61 million euros ($84 million) in the first nine months and “you should anticipate a doubling” in the fourth quarter” from the previous three months, Co-CEO Bill McDermott said on the call. Third-quarter net income climbed to 1.25 billion euros from 500 million euros a year earlier on a 723 million-euro reduction in provisions for damages to Oracle Corp. in a copyright lawsuit, the company said in a statement today.

SAP is counting on new products to make up about a quarter of its targeted 20 billion euros in annual sales by 2015. McDermott has said the Walldorf, Germany-based company wants to expand with new software offerings rather than large acquisitions. Archrival Oracle, which last month reported fiscal first-quarter profit that beat analyst estimates, acquired more than 70 companies in a $40 billion buying spree that began in 2005.

‘Prudent’ Forecast

SAP rose 1.5 percent to close at 43.48 euros after trading down as much as 1.3 percent earlier in the day. The stock is up 14 percent this year, giving the company a market value of about 53.4 billion euros. Oracle has gained 2 percent this year.

SAP’s products include applications to manage payrolls and sales organizations and it provides software for the order fulfillment system behind Apple Inc.’s iTunes download system. After beating estimates in the last two quarters, the company today maintained its outlook for software and related services sales growth in 2011 to be at the upper end of a 10 percent to 14 percent range.

This “may disappoint in view of in-built growth in the first nine months and the implicit deceleration in the fourth quarter,” Sebastien Thevoux-Chabuel, an analyst at Oddo Securities in Paris, said in a note to clients. He has a “buy” recommendation and 45-euro price target on SAP.

McDermott’s response was that “our fourth-quarter pipeline is very strong,” and that the guidance shouldn’t be interpreted as “a lack of confidence.”

Goldman Sachs reiterated a “buy” recommendation and said SAP’s guidance was “prudent” and could offer upside as new products’ sales take off earlier than expected.

Contract Wins

SAP, which won contracts from Unilever Plc, Bristol-Myers Squibb Co. and Maharashtra State Electricity in the quarter, said Oct. 14 that software and related services sales rose 18 percent at constant currencies, based on non-international financial reporting standards, in the first nine months of the year.

At the time, SAP maintained its outlook for software and related services sales growth in 2011 to be at the upper end of a 10 percent to 14 percent range.

“We are being reasonable about uncertainties in the market,” Snabe said in an interview with Bloomberg Television today. “CEOs I meet say they have strong balance sheets and are looking for ways to grow through innovation and they are using SAP to do so.”

--With assistance Linzie Janis in London. Editors: Robert Valpuesta, Tom Lavell

To contact the reporter on this story: Ragnhild Kjetland in Frankfurt at

To contact the editor responsible for this story: Kenneth Wong at

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