FT.com / Companies / IT - SAP delays software rollout

FT.com / Companies / IT - SAP delays software rollout

SAP delays software rollout
By Maija Palmer

Published: April 30 2008 10:08 | Last updated: April 30 2008 18:22

SAP on Wednesday delayed the roll-out of its new online software for medium-sized businesses – a crucial part of its growth plans – and reported a steep fall in first-quarter profits.

The German group had hoped to generate €1bn from supplying its internet-based Business ByDesign software to 10,000 small to medium-sized customers by 2010. However, it said that it would take 12-18 months longer than expected to reach this target.

Business ByDesign is the company’s first foray into web-hosted software for the mid-market. Companies such as SAP and IBM are trying to cater for smaller customers as orders from big enterprises slow. The small business IT market is estimated to be worth about $400bn, but potential suppliers face stiff competition from entrenched competitors such as Microsoft.

Henning Kagermann, chief executive, said SAP was slowing down the roll-out as it looked for ways to reduce the cost of running the internet services. “We need to automate the running of the services, otherwise the cost base will be too high and the profit will not be good enough,” he said.

Mr Kagermann has promised that margins from the internet business will be the same as those of SAP’s other businesses. “I want to prove to the market that this way of selling software will not lead to a margin decline.”

While the company looks for ways to cut running costs, it will limit roll-out of Business ByDesign to just six countries and fewer than 1,000 customers.

SAP missed analysts’ estimates for its results for the three months to the end of March, reporting a 15 per cent increase in software and services revenues to €1.74bn, against expectations of around €1.8bn.

The weak results echo a disappointing performance by US rival Oracle last month, and compound fears that the software market may be slowing in the uncertain economic climate.

Mr Kagermann said the US remained a tough market, with customers spending less on software deals. He saw no signs of a slowdown spreading to Europe.

US sales, which account for a quarter of revenues, fell by 1 per cent, while European sales, which account for half of SAP’s business, rose 22 per cent.

Total revenues were €2.46bn ($3.8bn), up 14 per cent from a year ago. But net income fell 22 per cent to €242m, as SAP was hit by €130m in charges related to its acquisition of Business Objects last year, and a €40m investment in the Business ByDesign service.

Earnings per share fell 19 per cent to €0.21.

SAP reiterated forecasts that software and services revenues would grow 24 to 27 per cent at constant currencies this year, and said operating margins, excluding costs related to Business Objects, would be higher than expected because it was cutting back investment in Business ByDesign.
Copyright The Financial Times Limited 2008