SAP revenues slump, in line with analyst expectations, bottom line up

SAP has revealed its Q2 2009 numbers and as widely predicted, top line software revenues are off 40%, down from €898 million in 2008 to €543 million this time around. Software services, support and maintenance was also off, 5% from €2,061 million to €1,953 million. That left total revenues down 10% from €2,858 million to €2,576 million.

On the cost side, SAP benefited from the deep cuts it made last year such that operating income rose from €593 million to €647 million. It now says that planned one time restructuring charges will come in at €200 million rather than in the range €200-300 million and that in the first half of 2009, it has reduced headcount by 2,800. It also said that it expects to maintain operating margin in the range 25.5%-27%. Net income was up slightly from €408 million to €423 million. Operating cash flow was €1.83 billion, up 34% on 2008 (€1.35 billion)

In prepared remarks, Leo Apotheker, SAP's CEO is quoted: "While the operating environment remains difficult, we are beginning to have improved visibility into the second half of the year." This is in line with what senior executives were saying at last week's Fortune Brainstorm event.

In the run up to the results, I fielded a number of calls from financial analysts asking whether there were indications that the 40% drop was likely to be exceeded or bettered. From soundings among the customer base and elsewhere, it was clear that SAP has been battling on a number of fronts to maintain momentum but there were no rumors of worse than expected results.

What these figures suggest is that while top line sales are hard to come by with BusinessObjects leading the way, there is also some pressure in the services revenue line. Surprisingly, that is not impacting support revenue as much as I thought it might, with the numbers showing an uplift from €1,099 million to €1,337 million in the quarter on a year over year basis. More detailed analysis will tell how this was achieved.

Consulting and training revenues both took hits as you might expect from seeing falling top line sales revenue. Professional services took a hammering, falling from €768 million to €610 million in the quarter on a year over year basis.

In the background, I have been arguing strongly that SAP needs to overhaul its training and certification strategy and program. These are key elements in its ability to deliver higher quality, better manage its partner ecosystem and help prevent it from getting continued black eyes over failed software projects. Given the relatively small amounts this line item generates, it seems to me that now is a very good time for biting that particular bullet.

According to one report, SAP believes the worst is behind it. These results will calm down jittery investors who were expecting something of a blood bath and in early morning trading, the shares popped around 0.5%.

Strong positive cash flow provides SAP with plenty of opportunity to engage in M&A activities although the recent IDS Scheer acquisition by Software AG and yesterday's acquisition of SPSS by IBM place question marks over some of SAP's partnering arrangements.

SAP will host an investor call at 3pm CET. Hopefully, we'll hear more about the detailed impact market conditions are having on SAP going forward.