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SAP Sees Higher Profit on Analytics, Mobile Software Demand

SAP AG Co-CEO Bill McDermott
SAP AG Co-Chief Executive Officer Bill McDermott said, “We’re in all the markets that companies and governments need to be in to grow and prosper.” Photographer: Hannelore Foerster/Bloomberg

SAP AG, the biggest maker of business-management software, forecast operating profit will rise as much as 11 percent this year, helped by demand for its real-time analytics software and mobile applications.

Operating profit will be in a range of 5.05 billion euros ($6.6 billion) to 5.25 billion euros, based on accounting methods used by SAP for internal planning and excluding currency swings, the company said today. That compares with the 5.15 billion-euro average estimate of analysts compiled by Bloomberg. Software and related services revenue on that basis will rise by 10 percent to 12 percent.

SAP, based in Walldorf, Germany, this month reported revenue and operating profit that beat estimates, while U.S. rival Oracle Corp. and smaller German peer Software AG fell short of projections. This year’s forecasts will include contribution from the $3.4 billion acquisition of SuccessFactors Inc. aimed at bolstering the SAP’s position in the cloud-computing market.

“SAP had a great finish in 2011, they have everything going for them and new innovative products,” said Sebastien Thevoux-Chabuel, an analyst for Oddo Securities in Paris. “Maybe they’re a bit too optimistic but we’ll see, as everything hinges on the macroeconomic picture.”

Shares Slip

The International Monetary Fund yesterday cut its forecast for the global economy as Europe slips into a recession and growth cools in China and India. The world economy will expand 3.3 percent this year and 3.9 percent in 2013, compared with September forecasts of 4 percent and 4.5 percent, the IMF said.

SAP shares slipped 0.5 percent to 44.17 euros in Frankfurt trading at 11:38 a.m., valuing the company at 54.3 billion euros. Before today, the stock had gained 9.7 percent over 12 months while Germany’s DAX index dropped 9.2 percent.

SAP plans to boost annual revenue with the help of cloud-computing software, mobile applications gained through its Sybase acquisition and Hana, which lets companies analyze data in a computer’s memory instead of through slower disk drives.

The management is “optimistic” that SAP can grow by at least ten percent a year even without acquisitions, co-Chief Executive Officer Jim Hagemann Snabe said today.

Net income in the fourth quarter was 1.2 billion euros, compared with an average analyst estimate of 1.14 billion euros. The software maker also beat its own growth forecast for 2011 for sales from software and related services, as revenue grew 17 percent at constant currency, compared with the 14 percent higher end of its forecast, based on non-international financial reporting standards.

‘Quite Upbeat’

“We’re in all the markets that companies and governments need to be in to grow and prosper,” co-CEO Bill McDermott said in a Bloomberg TV interview, adding that he’s “quite upbeat” about the coming quarters.

Revenue from Hana will probably more than double to more than 320 million euros this year, while sales from mobile applications will more than double to more than 220 million euros, McDermott said. Revenue from the on-demand software Business ByDesign suite will probably triple, he said, without stating current sales.

Global software revenue is set to grow 5.8 percent this year, helped by demand from companies wanting to move computing resources to external server centers, as well as the need to process large datasets and increased use of mobile devices, according to research firm IDC.


Since McDermott and co-CEO Jim Hagemann Snabe took the helm from Leo Apotheker in February 2010, they have pursued a strategy of making their software available on-premise, on-demand and on-device.

“They’ve turned around from about two years ago,” said Ray Wang, CEO of Constellation Research. “A lot of things like outreach to customers and communication now work much better.”

The company is “well-positioned” to meet its 2015 targets for more than 20 billion euros in revenue and a 35 percent operating margin, the co-CEOs said in the statement. The operating margin, based on non IFRS accounting standards, was 33 percent last year.

SAP’s operating profit margin will rise “more moderately” in 2012 because of lower margins at SuccessFactors’ Web-based operations, McDermott said.

SuccessFactors’ user base could double this year from about 15 million and the purchase will ultimately give SAP the critical mass to make the cloud business profitable, McDermott said. The acquisition will ‘surely’ be approved by U.S. authorities ‘very soon’, SAP Chief Financial Officer Werner Brandt said.

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