/>
X

SAP European license sales leap

Company still sticks to conservative forecast, however, despite European license sales increase of 22 percent.
zd-defaultauthor-reuters.jpg
Written by Reuters on
Software maker SAP beat expectations on all fronts as resurgent IT spending in Europe carried license sales 18 percent higher in the second quarter, lifting its shares by more than 5 percent on Thursday.

License sales, key to lucrative future business in maintenance and services, rose to $986 million (715 million euros), easily beating an average forecast of $923.3 million in a Reuters poll of analysts.

In Europe, license sales rose by 22 percent, their steepest rise since the third quarter of 2004, providing evidence of a long-awaited upturn in spending in SAP's home continent.

But the world's biggest maker of business software stuck to a now conservative-looking full-year forecast. It added it had not made any material provisions for dealing with allegations of intellectual property theft brought by archrival Oracle.

In early trading Thursday, SAP shares were up 4.2 percent at 39.37 euros ($53.93), the top gainer on the German blue-chip DAX index. It was also the top gainer in Europe's blue-chip DJ Stoxx 50 index and boosted the European technology index. SAP shares earlier rose as high as 39.80 euros.

SAP's operating income also beat market forecasts with a 10 percent rise to $761.7 million, helped by the fact that SAP spent just $41.1 million of $411 million to $548 million it plans to spend by the end of 2008 on marketing new software for smaller firms.

SAP said it now had 26 percent of the global market for software that helps companies automate and manage processes from supply-chain management to human resources, extending its leading position from 25.1 percent at end-March.

License sales grew by a double-digit percentage in all regions, even before adjustment for the effects of the U.S. dollar's trading near record lows against the euro. In Europe, license sales grew by 22 percent.

Forecasts unchanged
SAP's total sales increased by 10 percent to $3.31 billion, broadly in line with expectations, and net profit rose 8 percent to $615 million, helped by a low tax rate.

Despite the strong results, all the more unexpected after archrival Oracle reported an overall slowdown in spending in the Americas and Asia-Pacific last quarter, SAP did not raise its full-year forecasts.

Credit Suisse analysts wrote in a note: "Although Q4 remains a crucial quarter for the company, we believe that full-year performance will be at the higher end of the guided range at the very least."

SAP aims to increase software and software-related service revenues by 12 to 14 percent at constant currencies this year. In the second quarter, these revenues rose 19 percent to $2.33 billion.

The company also repeated its 2007 operating margin was expected to slip slightly to between 26.0 and 27.0 percent as it chooses investments over short-term profits. Its second-quarter operating margin was 22.0 percent.

SAP shares trade at near-historic lows of 21 times expected 2008 earnings, according to Reuters Estimates, below the sector average of 23 percent. Credit Suisse, which rates SAP "outperform," said Thursday's results should lead to upgrades.

"At current valuations, the stock is priced for software and software-related service revenue growth at the lower end of guided range, in our view," the bank's analysts wrote.

Chief Executive Henning Kagerman told Bloomberg TV that SAP would likely ramp up its spending in the second half on a new product codenamed A1S, which is aimed at smaller firms than SAP's traditional customer base and is due early next year.

SAP could also have to make a hefty payment if it agrees with Oracle to settle the intellectual-property case, in which SAP has admitted some wrongdoing.

Related

Apple politely explains why iPhone cases are a waste of money
Apple iPhone 13 Pro Max

Apple politely explains why iPhone cases are a waste of money

Apple
The 8 best iPhone models of 2022
iphone-12-models.png

The 8 best iPhone models of 2022

iPhone
Delta Air Lines just made a callous admission that customers may find galling
screen-shot-2022-07-18-at-5-18-46-pm.png

Delta Air Lines just made a callous admission that customers may find galling

Business