Update: SAP Q1 sales up, profits hit by cost growth

SAP’s first quarter revenue is up 21 percent, but profit growth was slower at 4 percent


SAP saw revenue rise by 21 percent in the quarter ended 31 March, with double-digit growth in all regions driven by increased software business from partners and the channel.

Profit growth was however slow at 4 percent when calculated to international financial reporting standards (IFRS), after a 24 percent growth in operating expenses, the company reported on Thursday.

Revenue in the quarter was €3 billion (US$4.2 billion at the exchange rate on the last day of the quarter), while net profit was €403 million. Software and software-related service revenue was €2.3 billion, up by 20 percent from the same quarter last year. Software revenue of €583 million was up 26 percent.

The company’s non-IFRS net profit was however up 20 percent, but this figure does not include a deferred support revenue write-down from acquisitions, acquisition-related charges, discontinued activities, and stock-based compensation expenses, SAP said.

The company has confirmed its forecast for the full year that it had made in January. It expects full-year 2011 non-IFRS software and software-related service revenue to increase in a range of 10 to14 percent at constant currencies.

Customers are embracing the company’s innovation and open ecosystem strategy, which is driving demand across its portfolio of business applications, analytics, and enterprise mobility solutions, SAP said.

SAP gained technology in the final category with its purchase of Sybase last year. That business "is growing substantially," with a strong backlog of sales leads, said co-CEO Bill McDermott in an interview.

The company will have some 40 mobile applications developed by the end of this year, said co-CEO Jim Hagemann Snabe during a conference call with analysts.

SAP's on-demand Business ByDesign ERP (enterprise resource planning) suite is selling ahead of expectations, according to McDermott. The company had hoped for 400 customers to be live on the system by its Sapphire event in May, but the goal has already been met, he said. The total will reach 1,000 by year's end, he added.

The company has also been developing a number of on-demand applications based on the underlying Business ByDesign platform, which are meant to be extensions to SAP's flagship Business Suite. On-demand products for expense management and talent management will be released in the second half of this year, Snabe said.

SAP executives also discussed the company's HANA (High-Performance Analytic Appliance) software, which incorporates in-memory processing. Charter clients around the world are running HANA now, and the company plans to demonstrate its "real business benefits" at Sapphire, Snabe said.

In-memory processing moves data into RAM, which provides a performance boost over reading off disk. Customers are eager to adopt the software, which can save them significant money compared to traditional databases, McDermott said. The pipeline for HANA is building quickly, he said. "We like what we see very, very much."

One customer McDermott recently visited realised that if he switched to HANA, he could save millions on database costs and then use the money for new initiatives, he said.

SAP has been building specialised analytic applications that will run on top of HANA. Partners, and customers will be able to develop for HANA as well, although the technical aspects of how that will work have yet to be determined, Snabe said.

Overall, executives stuck to a consistent theme, positioning SAP as a company aimed at growth by selling new products, not means such as acquisitions.

The ERP market is seeing continued consolidation with recent deals like Infor's pending $2 billion acquisition of Lawson Software. There had been speculation other vendors would counter-bid for Lawson, but no offers emerged publicly.

"We were completely uninterested" in buying Lawson, McDermott said in the interview. "It's an old model. Essentially, you buy this company and you can cut costs and consolidate your operations. It may be financially attractive, but doesn't innovate for customers."

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