July 18 (Bloomberg) -- SAP AG Chief Executive Officer Henning Kagermann flew to cities from Atlanta to Vienna in the past quarter in search of software sales to small companies. Investors say the strategy will take time to pay off.

Shares of SAP, the world's biggest maker of business- management software, lost 5.4 percent this year before today. Shares in Oracle Corp., its closest rival in the market for payroll and billing programs, rose 19 percent.

Kagermann is struggling to find growth outside the market for larger, corporate clients. Walldorf, Germany-based SAP may report its first decline in profit in three years tomorrow because of increased taxes and a weaker dollar, according to a Bloomberg survey of 15 analysts. Oracle's stock has doubled in three years as $25 billion of acquisitions added market share.

``Investors want instant good news and SAP doesn't have much to offer,'' said Ernst Konrad, who helps oversee $35 billion at BayernInvest in Munich, including SAP shares. ``Oracle is making more noise.''

License sales may have risen 12 percent, trailing Redwood City, California-based Oracle's 19 percent growth in its most recent quarter, the survey shows.

SAP is spending 400 million euros ($551 million) over two years to push sales of ``pay-as-you-go'' software, a subscription-based product which targets companies with less than 1,000 employees. SAP aims to generate 1 billion euros in annual sales from such customers by 2010.

Profit Decline

SAP's shares fell 37 cents, or 1 percent, to 37.73 euros at 9:18 a.m. in Frankfurt. The stock is trading at 23 times estimated profit for this year, compared with 17 times for Oracle's stock. Shares of smaller rivals Business Objects SA and Software AG, which have doubled in the past year, are among leaders in the 63-member Bloomberg World Software Index.

``We are disappointed,'' said Peter Braendle at Swisscanto Asset Management, who holds SAP shares as a ``long-term'' investment. ``I still wouldn't say the stock is cheap now.''

Investment will hurt profitability this year, SAP forecast in January. Second-quarter net income may have slipped 2.7 percent to 404 million euros, the average estimate compiled by Bloomberg. Sales probably gained 10 percent to 2.42 billion euros, half the pace Oracle reported in the most recent quarter.

SAP spokesman Frank Hartmann declined to comment before the official release and said Kagermann wasn't available to comment. Kagermann, 60, received 4.35 million euros in fixed pay and bonus in 2006, down from 6.1 million euros the previous year.

Oracle's Push

Oracle CEO Larry Ellison said on July 27 he will buy more companies, continuing the industry's biggest run of acquisitions. Oracle's share of revenue in application software, defined by AMR Research Inc. as a $29 billion market, gained one percentage point to 21 percent in 2006, the Boston-based researcher said. SAP lost 1 percentage point to 41 percent.

A rivalry between the two companies escalated in March when Oracle filed a lawsuit claiming SAP's TomorrowNow unit in the U.S. hacked into its Web site and stole software code on a ``grand scale.'' SAP then admitted some ``inappropriate'' downloads were made, while denying copyright infringement. Kagermann hasn't ruled out setting aside money from second- quarter earnings for the lawsuit.

``Until SAP can satisfy the authorities that TomorrowNow's failings were isolated, this will remain a cloud over the stock,'' UBS AG analyst Michael Briest wrote in a July 4 note. He rates the stock ``buy 2.'' The trial is set to start Sept. 4.

License Sales

Still, 26 analysts of 41 who follow SAP issued ``buy'' or equivalent ratings in the past year, according to data compiled by Bloomberg.

The market has so far focused on the investment costs ``only as being margin dilutive, without factoring the potential upside from the strategy,'' Credit Suisse analysts in London including James Clark wrote in a report on June 20.

Second-quarter license revenue, an indicator of future sales from maintenance and consulting, probably rose 14.7 percent when excluding currency fluctuations, according to estimates by the bank, which is ranked No. 1 in European technology and software by Institutional Investor.

The dollar was on average about 7 percent weaker against the euro in the second quarter from a year earlier, cutting the value of revenue from the U.S. The U.S. is SAP's biggest market.

``Investors remain a little cautious given Oracle's lackluster U.S. performance in its latest quarter and the fact that SAP's U.S. business has exhibited a deceleration now for three quarters,'' UBS's Briest said.

Changed Format

SAP started a new reporting format this year and no longer gives annual forecasts for software license revenue. Instead, it predicted in January that revenue from so-called software and related services will rise between 12 percent and 14 percent in 2007, excluding currency fluctuations.

The software maker also forecast the new so-called mid- market product, under the codename A1S, will generate similar profitability as SAP's existing operations.

``Double-digit per se isn't disappointing, but it may be compared with smaller companies with smaller revenue bases,'' Swisscanto's Braendle said. ``I don't blame them for not making acquisitions. They just have to show they can really profit from the mid-market, which is showing huge potential.''

To contact the reporter on this story: Kenneth Wong in Berlin at kwong11@bloomberg.net

Last Updated: July 18, 2007 03:21 EDT