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(BN) SAP to Reach Top End of Profit Forecasts on Software Sales

Tue, 26 Jul 2011 15:11:56 -0700

Bloomberg News, sent from my Android phone

July 26 (Bloomberg) -- SAP AG, the largest maker of business-management software, said it will meet the top end of its profit forecast range as second-quarter license sales beat estimates and rival Oracle Corp. The stock rose 3.6 percent.

Operating profit, based on non-international financial reporting standards, will be at the high end of a previous forecast range of 4.45 billion euros ($6.5 billion) to 4.65 billion euros, excluding currency swings, SAP said today. Non- IFRS software and software-related services revenue growth will reach the top end of a range of 10 percent to 14 percent. The measure grew 20 percent in the second quarter.

“Oracle has been outgrowing SAP for some time. The question is, do we have the start of some kind of market share change?” said Ross MacMillan, an analyst at Jefferies & Co. in New York with a “hold” recommendation on SAP and a “buy” on Oracle. “It definitely looks like this quarter in particular they outgrew Oracle, but they’ve also got an easier comparison” from a year earlier.

SAP’s Co-Chief Executive Officers Bill McDermott and Jim Hagemann Snabe, whose contracts were extended to 2017 this month, aim to boost annual revenue to 20 billion euros by 2015, driven by mobile products, services and the real-time analytics technology Hana. Second-quarter license sales grew 26 percent while Oracle reported a 19 percent gain for its fourth quarter ended May 31.

Product Pipeline

SAP said it is taking market share from its main competitors and that the momentum from the first half is continuing in the second half.

“The pipeline for Hana is the biggest in the history of SAP,” McDermott said in an interview in New York today. The Hana in-memory product, or High-Performance Analytic Appliance, is designed to speed up analysis of business data. It comes on servers from companies such as Hewlett-Packard Co., International Business Machines Corp., Dell Inc. and Cisco Systems Inc.

McDermott also said SAP is benefiting from the use of Apple Inc.’s iPad tablet computer among executives who can have mobile access to real-time business analytics. “By 2014, 6.5 billion workers worldwide will be on mobile devices. What you are seeing is a generational change,” he said.

Shares Jump

Shares of Walldorf, Germany-based SAP climbed as much as 4.7 percent to 43.96 euros in Frankfurt trading today and closed at 43.49 euros. The stock has gained 14 percent this year, giving the software maker a market value of 53.4 billion euros. SAP was originally scheduled to release second-quarter earnings tomorrow.

“It is nice that SAP is so confident in outperforming their 2011 target, but we should all keep in mind that they do a major share of their business traditionally in the fourth quarter, so let’s see,” said Tobias Ortwein, senior vice president of Pierre Audoin Consultants in Munich.

SAP, which makes payroll management, business intelligence tools and software that helps companies reduce their carbon emissions, also provides the software for the order fulfillment behind Apple’s iTunes download system.

During the quarter, the company won the U.S. National Hockey League team San Jose Sharks as a user of its on-demand software Business ByDesign, while Colgate-Palmolive Co. and Lenovo Group Ltd started using the Hana in-memory technology.

Second-quarter net income rose 20 percent to 588 million euros, compared with the 586 million-euro average estimate of 17 analysts compiled by Bloomberg. Software license sales climbed 26 percent to 802 million euros, topping the 734 million-euro average estimate.

Credibility Staked

SAP’s net income trailed analyst estimates for the past seven quarters, according to data compiled by Bloomberg. After announcing its first-quarter earnings on April 28, the shares fell 5.7 percent, the most in 1 1/2 years.

“After the company missed slightly in the first quarter, the management staked their credibility on maintaining the forecast so it looks like whatever they missed in the first quarter, they made up for it in the second quarter,” said Jonathan Crozier, an analyst for WestLB AG in London. “Clearly this is better than people would have been expecting.”

Global spending on software for companies may grow by 9.5 percent this year, according to Gartner Inc, with a slowdown in coming years. SAP needs to grow nearly 10 percent a year to reach its 2015 target of 20 billion euros in sales.

Cooperation Agreements

During the second quarter, SAP reached cooperation agreements with Verizon Communications Inc., Dell Inc. and Amazon.com Inc. to sell mobile products, Hana, and software as a service, respectively.

While archrival Oracle has spent more than $42 billion on takeovers since the beginning of 2005, SAP has made only two large acquisitions in its 39-year history: Sybase Inc., which SAP bought last year for $5.8 billion, and business-intelligence company Business Objects acquired in 2007.

“Our key focus will be organic growth,” McDermott said today. “If it moves the company significantly forward into a new category that is game changing we will look at it.”

To contact the reporter on this story: Ragnhild Kjetland in Frankfurt at rkjetland@bloomberg.net

To contact the editor responsible for this story: Kenneth Wong at kwong11@bloomberg.net

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