SMB Customers, BI Projects Lift SAP’s First Quarter

May 3, 2010 Timothy Prickett Morgan

Application software bellwether SAP pulled off a pretty decent first quarter despite all the trials and tribulations at the company that lead to the ouster of its chief executive officer, Leo Apotheker in February. For the quarter ended in March, SAP’s sales rose by 5 percent, to €2.51 billion, and net income was nearly doubled, to €387 million.

In the quarter, new software license sales hit €464 million, up 11 percent compared to a pretty awful first quarter in 2009, and support revenues were up by the same amount, to €1.39 billion. Subscription and other revenues relating to SAP’s online application offerings rose by 25 percent, to €89 million, growing nicely compared to the company as a whole but still a minute fraction of its overall business. Consulting revenues continued to fall in the first three months of the 2010, dropping 13 percent, to €479 million. Training sales were off 18 percent, to €59 million, and other services revenues fell 21 percent, to €19 million, illustrating once again how companies even when they are feeling a little better about the economy are choosing smaller, cheaper projects with a quick return on investment rather than the big-bang projects that SAP was made famous for a decade ago.

When reckoned in euros, sales of new software licenses, a key indicator of the health of the IT sector, in the EMEA region were up 5 percent, to €218 million, while sales in the Americas were up a more impressive 13 percent to €171 million. The Asia/Pacific region showed the biggest rebound, with a 23 percent increase, to €73 million. Obviously, still a small part of the company’s revenue stream. In terms of total revenues, Germany is still a large market for SAP, but not its strongest, with sales only up 3 percent, to €444 million in Q1; the rest of Europe accounted for €859 million, up 9 percent. Total sales at SAP in the United States fell by 5 percent, to €620 million, and Japan had an 8 percent decline, to €111 million.

Bill McDermott, one of the new co-CEOs at SAP, said that SAP had 13 percent growth in its small and medium enterprise business. “We are successfully evolving our go-to-market model to be more scalable and volume oriented,” McDermott explained on a call with Wall Street analysts. “This is in combination with our inside sales and our channel partners, which are all expanding nicely. And there is also a strong anticipation for our new Business ByDesign solutions across the world.”

Business ByDesign is SAP’s latest foray into the midrange application space, announced back in September 2007 (see SAP Plants Its Flag in Mid-Market Territory with SaaS Apps for more on that) and delayed many times since then. McDermott said that SAP believed it could hit its final launch target of mid-2010 for Business ByDesign. Jim Hagemann Snabe, the other co-CEO at SAP, said that about 100 customers are running the SaaSy SAP software in production, but warned Wall Street not to count on too much revenue from this line in 2010.

McDermott added that sales of business intelligence (BI) products, led by the acquired Business Objects tools, was also up in the double digits during the quarter. IBM has, of course, been focusing the OS/400 and i platform on data warehousing when it comes to SAP software for the past several years, trying to take advantage of some of the features in the DB2 for i database that give it superior performance. But thus far, IBM has only a few thousand SAP customers running their code on the AS/400 and its progeny. (Microsoft used to be one of them a decade ago, you will remember.) While this is a small customer base, they tend to be at the large end of the midrange, which means both SAP and IBM make a good bit of dough on the SAP-Power Systems i combo. It will be interesting to see if Business ByDesign will make a dent in the ERP installations running on OS/400 and i machinery. This is clearly the juiciest target SAP has in mind.

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