SAP Reports a Strong Second Quarter

Despite preliminary reports earlier in the week that SAP would record disappointing software license sales for its second quarter, the company handily tromped expectations July 19, reporting an 18 percent increase in software sales, a jump led by European purchases.

On SAP’s European home turf, software sales rose by 22 percent, a comeback from July 2006, when the Walldorf, Germany, company’s earnings were impacted by weak sales in Europe and China. Overall, software and related service revenues for the second quarter were $2.36 billion versus $2.04 billion a year ago, an increase of 16 percent compared with the second quarter of 2006.

New license sales, an indication of profitable future earnings in software support, rose to $986 million, beating an average projection of $923.3 million, according to a Reuters poll of analysts.

Total revenues were $3.34 billion for the quarter ending June 30, an increase of 10 percent over the same period a year ago.

SAP officials said that due to a $41.45 million investment in “untapped segments” in the midmarket, operating margins for the quarter were down a hair, from 23.9 percent in the second quarter of 2006 to 23.8 percent for this most recent quarter. SAP has been aggressively pursuing the midmarket with the development of its upcoming A1S suite, which is rumored to be on-demand and appliance-based.

SAP had warned investors in 2006 that it would have a big cash outlay to gain new customers in the midmarket. Officials had said they would invest an additional $415 million to $515 million over eight quarters to build up its new midmarket business, and nearly $70 million of that has already been spent in the first two quarters of 2007.

SAP officials said in a statement that their overall market share in the applications business rose by 26 percent for the four quarters that ended June 30, a percentage that can only help SAP compete against Oracle, its fiercest competitor.

During a June 26 fourth-quarter 2007 earnings call, Oracle Chief Financial Officer Safra Catz said the Redwood Shores, Calif., company’s new software license revenues grew at a rate of 32 percent “while SAP’s growth slowed to 10 percent in their most recent quarter.”

Analysts are questioning Oracle’s “Surround SAP” strategy. Click here to read more.

Oracle President Charles Phillips said in the same call that Oracle’s “strategy of combining innovation with acquisitions is clearly beating SAP’s strategy of trying to build everything themselves using a 1970s-era proprietary programming language.”

SAP CEO Henning Kagermann said in a statement July 19 that the company’s second quarter was an excellent one for SAP, with double-digit growth in all regions.

“We continue to gain share against core enterprise application vendors,” said Kagermann. “For the remainder of the year, we plan to build upon our first half success by further expanding the adoption of our Enterprise Services Architecture and growing our already leading presence in the mid-market.”

Despite its success in the quarter, SAP provided a fairly conservative outlook for the remainder of its fiscal 2007. It expects full-year software and services revenues to increase between 12 and 14 percent, compared with 12 percent growth in 2006.

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