Profit Shrinks at SAP

Revenue rises 10%.
Publish date:

Updated from 11:45 a.m. EST



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revenue grew in the fourth quarter while profit shrank due to investment in a new product line.

Revenue rose 9.9% to $4.8 billion (3.24 billion euros), from a top line of $4.37 billion (2.95 billion euros) for the same quarter of the prior year. Analysts were looking for $4.66 billion, according to Thomson Financial. Revenue grew 14% year over year in constant currency.

Net income shrank to $1.12 billion (756 million euros) or 93 cents vs. $1.19 billion (804 million euros) or 98 cents a year ago. Analysts were expecting 87 cents.

The lower profit was due to higher investment in the development and launch of Business ByDesign (BBD), the company's on-demand business software service for the small- and medium-business market. That service began limited operations in the fourth quarter and is expected to have a wider rollout in 2008. SAP expects to have 1,000 clients on BBD by the end of 2008, CEO Henning Kagermann said on a conference call.

The company projected 2008 software and related services revenue growth of 24% to 27%, or approximately $13.6 billion to $13.97 billion in constant currency, excluding a deferred support revenue writedown of $266 million from the January acquisition of Business Objects. The company did not project total revenue expectations. Excluding items, the operating margin is expected to be 27.3%.

Full-year 2007 revenue was $15.2 billion (10.3 billion euros). Analysts expect total 2008 revenue of $16.3 billion.

Business Objects posted full-year 2007 revenue Wednesday of $1.51 billion.

SAP's fourth-quarter operating margin was 34.3%, compared to 36.9% for the same period of the prior year.

Software revenue grew 18% during the quarter, according to Deputy CEO Leo Apotheker. The company's market share in the fourth quarter was 28.4%, the company's historical high, he added.

Shares were down 92 cents, or 1.9%, to $46.66 in recent trading.

Profit was reduced 120 basis points by investments in BBD and 30 points by currency effects, Bill McDermott, CEO of SAP Americas and Asia-Pacific/Japan, said in an interview.

BBD is in use by 156 clients currently.

Kagermann said he expects Business Objects' revenue to grow at least 5% in 2008.

"We have a 12-percentage-point lead over the next biggest competitor," Apotheker said in a reference to


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. "We continue to see a strong competitive win rate against our competitor." He put the rate at which SAP wins against both international and regional competitors for new customers at 80%.

"We gained four points of market share last year," McDermott said. "People are saying no to disparate systems with risky architecture," he added, referring to Oracle's acquisitions of more than 36 software companies in recent years.

Spending on research in 2008 will be comparable to 2007 levels, McDermott said. R&D was up 9% year over year in 2007, to $2.16 billion.

SAP's comprehensive enterprise service-oriented architecture (SOA) platform, which includes NetWeaver and the business application software suite, is adding about 1,000 customers a month, McDermott said. That is approximately double the rate of new customers signed in 2006, he added.

SAP now has 29,000 SOA systems at large businesses, Kagermann said. The company does not break out revenue for the platform.