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Licence sales bolster SAP
FRANKFURT, April 20 (Reuters) – Germany’s SAP met analysts’ forecasts for sales of new software licences but missed expectations for earnings after a difficult first quarter in which it lost a top manager and faced a lawsuit from a rival.

The world’s biggest maker of business software said on Friday licence sales, which tie customers into lucrative maintenance and service deals, rose 10 per cent to €564m ($767m), in line with a Reuters poll.

Licence sales were driven by 11 per cent growth in the Americas, allaying fears of weakness in the world’s biggest software market raised by IBM this week and reassuring investors spooked by two profit warnings last year.

Operating income rose 6 per cent to €433m, missing the poll average of €448m, although SAP said it had spent only €10m-€20m in the quarter of the €300m-€400m it plans to spend on developing new software.

SAP traded up 1.1 per cent on Instinet and up 0.4 percent at brokerage Lang & Schwarz ahead of the 0700 GMT market open in Frankfurt. The shares have recently been trading close to an all-time low in terms of earnings multiples.

”In light of what happened in Q4, I’d say this is a positive result. Being in line is good. They made a 20-per cent operating margin which was fractionally below expectations but I think they’ll be forgiven that,” said WestLB analyst Jonathan Crozier. ”I’d say this is exactly the kind of in-line quarter the company needed to start rebuilding confidence.”

SAP is fighting an increasingly bitter battle against US database specialist Oracle, which has been buying up peers to compete more directly with SAP and last month said it was suing its German rival for stealing its software.

The company was also forced to reshuffle its top management at the end of March after the unexpected departure of software development expert Shai Agassi, its top product strategist.

SAP, whose software helps companies manage their finances, personnel and operations, said business was strong across all regions and said its market share for the year to March 31 was 25.1 per cent, up from 24.5 per cent a quarter earlier.

”On a constant currency basis, we achieved a strong increase in software and software related service revenues and reported double digit growth rates in each region,” Henning Kagermann, chief executive, said in a statement.

Software and software-related service revenues, which SAP says will become the key figure to watch as it starts to sell software over the internet and by subscription, rose 9 per cent or 15 per cent at constant currencies to €1.52bn.

SAP stuck to its target of raising these software-related revenues by 12-14 per cent, adjusted for currency fluctuations, over the full year. The first-quarter result was in line with market consensus.

Total sales rose 6 per cent to €2.17bn, missing market expectations, and net profit rose 10 per cent to €310m. The operating margin, which SAP says will dip to 26-27 per cent this year, was 20.0 per cent.

Shares in SAP are more expensive than Oracle stock, due to SAP’s generally strong execution of an organic growth strategy. They currently trade at 20 times 2008 earnings, according to Reuters data, well below their historical average of about 29 times earnings and only a slight premium to Oracle’s 17 times, after the company missed targets twice last year

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