SAP Forecasts At Least 12% Profit Gain on Software Demand

SAP AG (SAP), the biggest maker of business-management software, forecast at least a 12 percent gain in full-year earnings as it adds Internet-based programs to attract users and fend off competition from Oracle Corp.

Operating profit adjusted for some items will rise to 5.85 billion euros ($7.79 billion) to 5.95 billion euros from 5.21 billion euros in 2012, assuming unchanged exchange rates, SAP said today. Analysts project 6.11 billion euros, the average of estimates compiled by Bloomberg.

While the forecast trailed estimates, it helped quell concerns that SAP’s pace of growth may be petering out. Co-Chief Executive Officers Jim Hagemann Snabe and Bill McDermott have added mobile and Web-based programs as well as the fast Hana database to compete with Oracle and persuade companies to spend even as economies such as that of the euro area shrink.

“I certainly wouldn’t consider that a low-key guidance, it’s double-digit growth and it’s significant,” McDermott said in an interview at the company’s headquarters in Walldorf, Germany. “Our cloud business is growing fantastically, as is Hana and mobile, and this emanates from a consistent core, so we’re really bullish.”

SAP shares rose 2.7 percent to 59.40 euros as of 10:43 a.m. in Frankfurt, valuing the company at 73 billion euros. The stock rallied 50 percent last year, making it the fourth-best performer in Germany’s 30-member benchmark DAX Index and exceeding Oracle (ORCL)’s 30 percent gain.

Narrowing Margins

SAP will continue to win market share and probably grow more strongly than Oracle in combined revenue from software licenses and cloud subscriptions, McDermott said. Business in southern Europe is showing “good signs,” adding to strong performance in markets such as Russia and the Nordic countries, he added.

The company fell short of its 2012 profit target as it hired more salespeople and license sales in the Americas slowed in the fourth quarter. Adjusted operating profit as a proportion of sales fell to 32 percent last year from 33 percent in 2011, pushed down by the addition of 8,700 employees and the acquisitions of SuccessFactors Inc. and Ariba Inc., whose Web- based business has lower margins. It targets a margin of 35 percent by 2015.

SAP is sticking to its forecast of sales exceeding 20 billion euros by 2015, aided by growth in new business areas, McDermott said.

‘Increasing Uncertainty’

Last week, SAP reported preliminary earnings for the fourth quarter. Operating profit for the period, excluding some items, rose 10 percent to 1.96 billion euros, missing the 2 billion euro average of analysts’ estimates.

For this year, SAP predicted revenue from software and software-related services, excluding some items, to gain 11 percent to 13 percent, less than the 14 percent predicted by analysts.

“It is clear that it is becoming tougher to close deals and this can be seen in the wide license guidance,” Barclays Plc analysts said in a note to clients. “Given that guidance is a touch light and points to increasing uncertainty this is a mild further disappointment.”

Cloud subscription and support sales will more than double this year to about 750 million euros, SAP predicted. The company expects sales of its Hana database to rise to 650 million euros to 700 million euros from 392 million euros last year.

SAP reports adjusted sales to take into account recurring revenue, such as subscription and support brought in by acquisitions. It also adjusts operating profit for acquisition- related charges, share-based compensation expenses, restructuring costs and discontinued activities.

Industry spending on enterprise software may increase 6.4 percent to $296 billion this year, faster than the 3.3 percent growth pace recorded in 2012, Gartner Inc. said Jan. 3. The research firm also raised its overall estimate of spending on information technology, saying that uncertainty regarding an upturn in the world economy is “nearing resolution.”

To contact the reporter on this story: Cornelius Rahn in Walldorf at crahn2@bloomberg.net

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

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