SAP's Profit Rises, Keeps Oracle at Bay - TheStreet

SAP's Profit Rises, Keeps Oracle at Bay

Revenue climbs 10%.
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Updated from 12:11 p.m. EDTShares of business software maker SAP (SAP) - Get Report jumped after the company said second-quarter profit rose 8% and that it hadn't lost market share to rival Oracle (ORCL) - Get Report.

The stock was up $3.94, or 7.6%, to $55.89 in recent trading.

SAP said revenue climbed 10% to $3.34 billion. Analysts polled by Thomson financial had expected revenue of $3.25 billion.

Earnings rose 8% to $620.6 million, or 51 cents a share. Excluding items, analysts had been expecting EPS of 44 cents on net income of $537.5 million.

Software product revenue was up 18% for the quarter, year over year. Customized software and related services revenue rose 16%.

"Our service business remained flat compared to the second quarter of 2006," CFO Werner Brandt said in a conference call with analysts.

The company said it picked up an additional 1% of the worldwide market for core enterprise applications, valued at $35.3 billion, increasing its share to 26% for the trailing four quarters.

The company saw double-digit growth in all regions, "and we continued to gain share against core enterprise application vendors," CEO Henning Kagermann said.

"On the expense side, we saw an increase in operating expenses of 11% for the second quarter," Brandt said.

SAP projected full-year software and services revenue will increase by 12% to 14%. Such revenue increased by 12% in 2006. Analysts project full year revenue of $13.9 billion.

"We are working on this entirely new business model based on a new product, with the code name A1S," Kagermann said.

SAP has so far invested 50 million euros ($69 million) in the A1S, which is a hybrid software-as-a-service (SaaS) platform intended for medium-sized businesses. The investment is expected to total from 300 million to 400 million euros ($414.7 million to $552.9 million), or 1% to 2% of margin, over the next two-year period.

Kagermann said A1S is on track for a September launch, when the product name will be announced.

In terms of SaaS, A1S represents "one of the biggest inventions hitting the market," SAP Americas President and CEO Bill McDermott said in an interview Thursday.

With the new product, SAP is going after

(CRM) - Get Report

, which offers subscription-based customer relationship management (CRM) software on demand. A1S will be "an integrated business suite that includes supply chain and manufacturing, finance, human relationship management and CRM, all in a fully integrated box, on demand and downloadable from the Internet for one monthly price," he said.

A1S is currently in a pilot stage, with mass adoption expected in 2008, McDermott said.

Addressing the higher operating expenses due to the A1S investment, McDermott took a sideways swipe at Oracle's growth strategy. "We don't think you can buy customers and products, like our competition. We invest on the margin, like our new business, the A1S," he said.

Kagermann said SAP's share of the medium-sized business market increased to 32%, on a rolling four quarters basis. "It's growing much faster than our high-end business," adding 1,750 new customers, he added.