SAP beats forecasts, ups market share

Georgina Prodhan

FRANKFURT: SAP, the world's biggest maker of business software, reported better than expected first-quarter licence sales, defying concerns about the health of the software sector as it took a bigger share of the market from rivals.

Shares in SAP rose more than 3 percent in an otherwise lacklustre German market after the company said its licence sales were up 17 percent in the quarter, driven by gains in the United States but strong across all regions and unexpectedly so in Europe.

While arch rival Oracle began to digest its $10.6-billion acquisition of PeopleSoft, and Siebel cut its outlook, SAP's focus on a broader, more integrated software portfolio and beefed-up sales force appeared to pay off.

Its first-quarter licence sales of 434 million euros ($565 million -- which bring future maintenance and service deals -- easily beat the average forecast of 408 million euros in a Reuters poll of 22 analysts.

In the United States -- the world's biggest software market where SAP generates nearly a third of its revenues -- SAP's market share increased to 41 percent from 38 percent a quarter earlier and globally it rose to 58 percent from 55 percent.

The company stuck to its forecast of licence sales growing 10 to 12 percent this year and earnings per share of between 4.70 and 4.80 euros, despite the better-than-expected first quarter, when total revenue rose 11 percent to 1.729 billion euros.

SAP shares were up 3.1 percent at 119.02 euros by 0920 GMT, the top gainer in an overall flat blue-chip DAX index. At the same time the DJ Stoxx European Technology index was up 0.71 percent at 232.61 points.

The results earned the company upgrades from more than one bank.

"Fantastic -- they crushed the numbers across the board," said JP Morgan software analyst John Segrich. "Every geography was ahead of what the Street thought."

"The Americas continues to be exceptionally strong, and Europe grew 18 percent not including Germany, which is way better than any expectations, certainly considering all the negativity you get about how bad Europe is for business."

Smith Barney upgraded the stock to "buy" from "hold", and WestLB also upped it to "buy" from "outperform".

BOTTOM LINE HOLDS UP



Fears that profits might suffer as SAP hires 3,000 extra staff this year were largely unrealised, although the company only reiterated a forecast of a rise of up to 0.5 percentage points in its pro-forma operating profit margin this year.

Pro-forma operating profits, excluding stock-based compensation and acquisition-related charges, grew 15 percent to 381 million euros, broadly in line with analysts' forecasts, while net profit was also in line, up 11 percent at 254 million euros.

The pro-forma margin was 22 percent in the March quarter, around 1 percentage point higher than a year ago.

At 832 million euros, free cashflow fell to 48 percent of revenues from 53 percent a year ago due to increased investments, SAP said.

But the company increased its liquid assets to 4 billion euros as of March 31 from 3.2 billion at the end of 2004, giving it the means to pursue acquisitions after losing a bidding war for U.S. retail software specialist Retek to Oracle.

Chief Executive Henning Kagermann indicated last month he could consider a share buyback, for which SAP has shareholder approval, once this level was reached.