Investors Cool on SAP's Upbeat Quarter

(page 2 of 2)

But despite its archrival's latest plan for plunder, SAP isn't looking to jump into the bidding. McDermott says SAP has "zero interest" in buying BEA, whose new bookings have been sagging. "I give you a giant red-crayon answer: N-O," he says. "It would be a big waste of shareholders' money. They're not an interesting property at all." (SAP did announce a small acquisition Oct. 17, saying it would buy privately held Indian business software maker Yasu Technologies for an undisclosed amount.)

Betting on ByDesign

UBS (UBS) analyst Heather Bellini said in a research note after the report that SAP's 8% sales growth in North and South America fell short of her estimates, despite an easy comparison with a year ago. Furthermore, even though SAP nudged its growth outlook for this year's software and related consulting sales toward the high end of a previously stated 12%-to-14% range, the shift won't be "a major catalyst" for SAP's stock price, Bellini said.

Bears won't care for 3% growth in Germany either, Citigroup (C) analyst Marc Geall said in a report to his clients. Still, he expects U.S. and German sales to perform better in the current quarter. Geall, who recommends SAP shares, also said margins could improve enough in 2008 to offset SAP's investment in new products.

Chief among those new offerings is an online software package called Business ByDesign that's aimed at companies with 100 to 500 employees and international operations. The cost of developing and marketing ByDesign is holding back profit growth: SAP's nearly 25% third-quarter operating margins were unchanged from year-earlier levels, in part due to spending of nearly $570 million in 2007 and 2008 on the product. At the same time, fourth-quarter sales should get a lift from ByDesign, SAP says, noting 20 companies are now leasing the software.

In a conference call with investors, Executive Board Chairman and CEO Henning Kagermann said it was too early to make a call on 2008 results—SAP doesn't publish specific sales or profit estimates for upcoming quarters—but described economic conditions as healthy. Citigroup expects SAP to book $14.59 billion in 2007 sales and $2.9 billion in profits. By issuing a conservative outlook for the year, the company could have leeway to spend more and still meet expectations.

Ricadela is a writer for BusinessWeek.com in Silicon Valley .