SAP's Q1 misses forecasts, eyes 2010 upturn

FRANKFURT, GERMANY:  Germany's SAP posted a worse than expected 8 per cent fall in its first-quarter operating profit on Wednesday, as software revenues slumped, and told investors not to expect an upturn before next year.

Leo Apotheker, who shares the top position at SAP with Henning Kagermann until June, said the first quarter had been the "toughest quarter since World War Two". But, speaking on CNBC, he added: "Hopefully we will see an upturn in 2010".

For the rest of the year SAP kept its outlook unchanged.

At 0730 GMT the company's share price was down 1.9 per cent at 29.565 euros, off an earlier low of 28.8 euros hit in opening trade, but under-performing Germany's DAX market index which was up 0.8 per cent.

SAP stock had been boosted last week on market speculation that U.S. rival IBM may buy the German company. Apotheker declined to comment on the takeover talk, but insisted that SAP wanted to remain independent.

SAP, the world's biggest maker of business management software, reported earnings before interest and taxes (EBIT) of 332 million euros ($432.1 million). That was far below the average forecast of 433 million given in a Reuters poll of analysts.

Key software revenues fell by a third to 418 million euros, and net income dropped 16 per cent to 204 million in the first three months of the year.

SAP's closest competitor, U.S. company Oracle, pleased investors last month with stronger than expected results and news that it would pay its first ever quarterly dividend as it benefited from market share gains and cost cuts.

Keeping Oracle at Bay

Analysts have said cost management will be key this year as investors are keen to see whether SAP can defend its operating margin and market share against Oracle.

Apotheker said SAP's operating margin in the first quarter was 23.6 per cent excluding one-time costs.

SAP confirmed its full-year 2009 operating margin, excluding one-off items, to be in the range of 24.5 per cent to 25.5 per cent at constant currencies.

SAP said it expects 2009 operating environment to remain challenging and that it will continue with cost-cutting measures, adding that measures initiated in October had "really taken hold", without elaborating.

SAP implemented cost cuts in October after a sharp drop in sales and said it would continue to slash costs as it reduces its workforce to 48,500 from 51,800 at the time.

Walldorf-based SAP has given no target for its key software and software-related sales this year.

It reiterated on Wednesday it based its margin forecasts on the assumption core sales would be flat or 1 percent lower than 2008 sales of 8.62 billion euros.

"The sales assumption in the guidance becomes more challenging," analyst Laurent Daure at Kepler said in a note. "Additional savings might however help the group to reach its margin target even on lower revenues."

According to StarMine, which weighs analysts' projections according to their track records, the shares are trading at 15.7 times estimated 12-month forward earnings, at a premium to IBM's 10.6 and Oracle's 13.3 multiple.