SAP Powers Shakes Off World’s Economic Jitters In The Third Quarter

October 29, 2012 Timothy Prickett Morgan

German application software giant SAP has had its share of technical, financial, and legal woes in recent years. But the company was firing on all cylinders in the third quarter ended in September. Hopefully SAP is a better bellwether for the IT economy than the server racket, which took a bit of a pause as September got rolling, as recent financials from Intel, Advanced Micro Devices, IBM, and Avnet show.

In the third quarter, SAP’s revenues rose by 16 percent to €3.95 billion. In the year ago period, SAP had stopped the bulk of its litigation with Oracle over now defunct third-party software supplier TomorrowNow, and that helped push up operating profits by €723 million in Q3 2011, This time around operating expenses increased significantly and there was no write up as cash that was offset for settling the litigation was put back on the books. Therefore, SAP’s profits after taxes fell by half to €618 million in the quarter even as sales climbed significantly.

In the quarter, SAP had pretty balanced sales, with software licenses up 17 percent to €1.03 billion and support revenues rising 16 percent to €2.11 billion. Cloud-based software subscription sales, which includes SaaS versions of SAP’s ERP wares as well as SuccessFactors human resource management software, was a tiny €63 million, up from an absolutely microscopic €4 million a year ago. The HANA in-memory database that SAP is slipping under an increasingly large number of its application modules to radically boost their performance (and take database sales away from Oracle) brought in €83 million during the quarter and was on track to meet the €320 million target that SAP set for the product line for all of 2012. Mobile applications, a fast-growing part of the SAP stack, accounted for €48 million and are on track to do €220 million for the year. SAP just closed its acquisition of Ariba on October 1, and these results do not include any revenue contribution from that unit.

In a conference call with Wall Street analysts, SAP chief financial officer Werner Brandt said that the global economy continues to stabilize and that SAP had growth in all regions, with particular strength in the United States and the emerging market parts of Asia, Europe, and Latin America. Equally cheery was Brandt’s statement that the company had a healthy mix of sales across small, midrange, and large enterprises in Q3. It is almost like Oracle and SAP live in parallel universes, but you have to remember that neither is tied to the PC sector and therefore are only benefitting from the shift to more and slicker mobile devices. But SAP’s co-president, Bill McDermott, contends that there is more to it.

“Enterprises are becoming more confident,” McDermott said on the call. “Strategic buying decisions and our strategy is validated as companies want to be real-time and unwired. And they want to partner with a company that has an open ecosystem–one that does not lock customers into a stack, but gives them choice.”

Looking ahead, SAP expects for the combined software license and software support to grow by between 10.5 percent to 12.5 percent for all of 2012, up from €11.35 billion on a non-IFRS international financial reporting basis. There’s an extra half point of revenue growth in there for Ariba, and those numbers already including SuccessFactors in the prior guidance. Operating profits for the full year are expected, once again on a non-IFRS basis, to fall between €5.05 billion to €5.25 billion, up from €4.71 billion for all of 2011.

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