SAP Second-Quarter Software License Sales Miss Estimates
Stock Chart for SAP AG (SAP)
SAP AG (SAP), the biggest maker of business-management software, reported its first software-sales decline in more than three years and abandoned its revenue forecasts as Asian customers withheld spending.
Software licenses, an indicator of future income, fell about 3 percent to 982 million euros ($1.3 billion) excluding currency swings. That compared with the 1.02 billion-euro average estimate of seven analysts compiled by Bloomberg and marked the first decrease since the fourth quarter of 2009. Software sales from Asia dropped 9 percent, led by Australia and Japan, Walldorf, Germany-based SAP said today.
“The slowdown in China impacts many countries in Asia and you see that in our numbers this quarter,” Co-Chief Executive Officer Jim Hagemann Snabe said on a conference call.
SAP fell 0.2 percent to 57.55 euros at 3:55 p.m. in Frankfurt, bringing its decline this year to 5.2 percent after four consecutive years of gains. Archrival Oracle Corp. (ORCL) and Accenture Plc (ACN), which offers SAP software, last month forecast sales that trailed estimates amid a shift in corporate spending away from longer-term contracts to Web-based applications.
The stock is valued at about 23 times earnings, compared with Oracle’s 15 times, and 13 for Microsoft Corp. Oracle rose 0.5 percent to $32.32 in New York, while Microsoft slipped 0.2 percent to $35.67.
Snabe and co-CEO Bill McDermott have acquired makers of enterprise software for mobile devices and are accelerating a push in SAP’s home-grown database technology Hana to offset the slowing pace of large installations.
“The macroeconomic environment is somewhat weaker, and not even SAP is immune to that,” said Mirko Maier, an analyst at Landesbank Baden-Wuerttemberg in Stuttgart with a hold recommendation on the shares. “The mobile, Hana and cloud businesses are performing well, but they are still too small to compensate for the pressure SAP faces in its core business.”
China’s economic growth slowed to 7.5 percent in the second quarter, slowing from 7.7 percent in the previous three months. Out of SAP’s second-quarter reported revenue of 4.1 billion euros, 15 percent came from Asia. The regional business will probably return to growth after this year, Chief Financial Officer Werner Brandt said.
Second-quarter operating profit adjusted for some items rose 3.9 percent to 1.22 billion euros, trailing the 1.24 billion-euro average estimate. Even as license sales fell, the company gained software market share from Oracle, Salesforce and Netsuite Inc. (N) and won several cloud deals against Workday Inc. (WDAY) in the quarter, McDermott said today.
“We do believe that the core business still can drive growth opportunities,” Snabe said.
Growth in global software-license sales will probably slow to an average 4 percent annually through 2016, after rising 4.1 percent last year, as companies try to trim costs by switching to cloud-based applications, Bloomberg Industries said this month, citing data from researcher IDC.
SAP, which had predicted growth for software and cloud-subscription revenue in a range of 14 percent to 20 percent this year, now projects a less specific “double-digit” percentage growth, CFO Brandt said.
Responding to the shift to cloud, SAP is making more of its programs accessible online and pushing into the database market. Second-quarter revenue from cloud subscriptions more than doubled to 183 million euros. Sales from Hana grew 21 percent to 102 million euros and SAP has more than 1,800 customers using the software, Snabe said.
The software maker also is using acquisitions to fight cloud specialists such as Salesforce.com Inc. (CRM), which last year displaced SAP as the top vendor of software to manage customer relationships, according to Gartner Inc.
SAP last month agreed to buy Zug, Switzerland-based Hybris AG to expand in e-commerce software and benefit from increasing consumption in markets such as China. The deal was valued at more than $1 billion, people familiar with the matter said at the time.
Oracle, which is also trying to catch up in the cloud-computing market, on June 21 reported sales that missed estimates for a second consecutive quarter. Accenture, which helps clients install SAP software, fell the most in almost two years after its June 28 earnings report showed that customers deferred decisions on short-term consulting contracts.
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