SAP Gets Pleasant U.S. Surprise - TheStreet

Updated from 11:19 a.m. EDT

SAN FRANCISCO -- A return of demand in the U.S. market helped business-software vendor


(SAP) - Get Report

beat Wall Street's second-quarter expectations Tuesday.

The German business software company reported revenue of $4.55 billion, excluding an $81 million writedown of revenue from the acquisition of Business Objects, a developer of business intelligence software. That was 20% growth from $3.79 billion a year earlier.

Analysts were expecting revenue of $4.49 billion, according to Thomson Reuters.

U.S. business sentiment "was better than we expected," compared with the first quarter, Co-CEO Leo Apotheker said on a conference call Tuesday. Sales of software and software-related services grew 39%, excluding writedowns, he said.

Due to integrating its acquisition of Business Objects, net income fell 9% to $638.2 million, or 53 cents a share, vs. $702.3 million, or 58 cents a share, one year ago.

Excluding special items, EPS was 65.7 cents a share. Analysts were expecting 63 cents.

Second-quarter operating margin fell to 20.7%, vs. 24% in the year-ago period. Total operating expenses grew 23% year over year to $3.54 billion.

Excluding special items, total operating expenses grew 20% year over year to $3.44 billion. Operating margin fell to 24.4% from 24.5% one year ago.

Excluding items, such as acquisition-related writedowns, software revenue grew 34% in constant currency to $1.4 billion. Support grew 29% in constant currency to $1.8 billion. And the fledgling subscription business jumped 50% in constant currency to $100 million.

Shares of SAP were up $4.09, or 7.6%, to $57.81 in recent trading.

For the full year, the company said it now expects to reach the upper end of the range for software and software-related services revenue projections for growth of 24% to 27% in constant currency.

Operating margin, excluding the write-down of revenue from the acquisition of Business Objects, will be 29% for the year, the high end of the previously projected range.

In early 2008, the company delayed the full rollout of the subscription-based product, Business ByDesign, an on-demand application software suite for small to medium-sized businesses. Executives said the full release will come after the release of a new version of the software.

Chairman and Co-CEO Henning Kagermann said the company has 11,500 customers for enterprise resource planning software -- a primary application category -- double the amount it had one year ago.

In ERP and other business applications, SAP competes with


(ORCL) - Get Report

. SAP partners with


(MSFT) - Get Report

on integrating SAP applications with Microsoft's database software.

SAP picked up 7.7 points of market share year over year from Oracle, McDermott said. SAP had an 80% competitive win rate against Oracle in deal situations, including both established and replacement accounts, he added.

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