SAP on the bounce?

SAP has announced an almost doubling of earnings in its Q1 2010 financial statement but remains cautious about the full year outcome.

The company will be encouraged by a return to double digit growth in software revenue, up from €418 million to €464 million in the quarter, a rise of 11%. Services revenue increased 12% from €1,741 million to €1,947 million. Both figures comfortably beat analyst expectations but the company's shares suffered in late European trading, largely as a result of disappointment about bottom line growth. Stephan Wittwer, analyst for LBBW, was quoted in the Wall Street Journal as noting:

"the company is back on track for organic growth." However, he added it is somewhat disappointing that the sales performance "is not reflected in the company's operating result."

Q1 net profit rose to €387 million from €196 million a year earlier.

As always, the devil is in the detail.

Revenue growth/decline was a mixed bag. Revenue from Germany rose slightly to €444 million €433 million. The rest of EMEA moved up to €859 million from €791 million. In the US, revenue declined to €620 million from €650 million, while the rest of the Americas grew to €247 million, up from last year's €211 million. Japan also saw slippage falling back to €111 million from €120 million while the rest of Asia Pacific revenue advanced to €340 million from €313 million.

Professional services and other service revenue dropped 14% from last year owing mainly to a decline of 13% in consulting revenue and an 18% drop in training revenue. While these are lagging indicators, the continuing decline in training revenues is a concern. While not a huge line item, recent criticisms of SAP's certification program have brought this topic into sharper relief.

Operating cashflow fell sharply €1.39 billion to €772 million. The company attributes this to: "...our decision to delay billing our customers for the 2010 support fees until customers had communicated whether they chose SAP Enterprise Support or SAP Standard Support – an option offered under the introduction of SAP’s two-tiered support model."

While the company talked up Q1 results based upon what it termed 'excellent execution,' it remains cautious about the full year outcome. In prepared remarks, Co-CEO Jim Snabe said: "The very strong performance in the first quarter doesn't justify that we simply increase our guidance for the full year." Many will be waiting to see whether the company generates significant buzz around the much anticipated general availability of Business ByDesign at the company's upcoming SAPPHIRE customer conference.