SAP posts hike in Q3 revenue and profit

Germany's SAP, the world's largest maker of business-management software, reported Thursday a third-quarter rise in revenue and net income, boosted by strong sales in the Europe, Middle East and Africa (EMEA) region and continued growth in the U.S.

Software revenue rose 13 percent to Euro 491 million ($AU840 million), from Euro 433 million (AU$741 million) in the same period the year before, the company said in a statement. At constant currencies, software revenue increased 17 percent year-on-year.

Third-quarter software revenue in the EMEA region, SAP's largest sales region, soared 24 percent to Euro 249 million, from Euro 201 million a year earlier. SAP won several European contracts in the quarter, including Hypo Real Estate Bank, InBev and GE SeaCo. But Leo Apotheker, president of global field operations at SAP, cautioned in a conference call with analysts that the strong third-quarter revenue figure is compared with a relatively weak figure from the previous year and that the European sales teams continue to operate in a "very challenging environment."

Software revenue in the U.S. market increased 6 percent to Euro 149 million from Euro 140 million, buoyed by new contracts from several companies including Allergan, Bose, CenturyTel Service Group and Hewlett-Packard. But revenue in the Americas region, including South America and Canada, dropped 2 percent to Euro 173 million in the third quarter, compared to Euro 176 million the year before.

"We expect to see continued growth in the U.S. but because of competition, we expect this growth to be more balanced," Apotheker said. The Walldorf, Germany, software vendor posted a 63 percent year-on-year increase in software revenue in the second quarter.

In the Asia-Pacific region, software revenue jumped 23 percent to Euro 69 million from Euro 56 million. Companies placing new contracts included Adventech Co., Indian Oil Corporation and China National Petrochemical (Sinopec), SAP said.

Sales in China and India are growing particularly fast, with this development not expected to change anytime soon, according to Apotheker.

Japan, however, continues to be a difficult market, with sales down 25 percent in the third quarter. "We are realigning our sales force to adjust to the changed sales climate," Apotheker said. "But we don't expect a turnaround by the end of the year, and we'll have to see about next year."

Total revenue in the third quarter was up 8 percent to Euro 1.8 billion from Euro 1.7 billion the year before.

Net income rose 15 percent to Euro 291 million, or Euro 0.94 per share, from Euro 252 million, or Euro 0.81 per share. Operating income was Euro 461 million, up 12 percent from Euro 413 million in the same period last year.

SAP's worldwide market share, according to its own estimates, grew to 56 percent at the end of the third quarter from 55 percent at the end of the previous quarter and 53 percent a year ago. Its U.S. market share rose to 38 percent at the end of the third quarter from 37 percent at end of the second quarter and 32 percent a year ago.

"SAP continues to get stronger, with increased revenue, stronger profits and greater market share," said Chairman and Chief Executive Officer Henning Kagermann.

Kagermann said SAP may hire more than the targeted 2,500 people in 2004, depending on sales and product research developments. So far this year, the company has added 1,972 employees. At the end of September, it employed 31,582 people.

SAP said it continues to expect full-year 2004 software revenue to increase by around 10 percent compared to 2003. The company also said it expects full-year 2004 pro forma earnings per share, which excludes stock-based compensation, acqusition-related charges and impairment-related charges, to be in the range of Euro 4.20 to Euro 4.30 per share.

The 2004 outlook is based on an assumed U.S. dollar to euro exchange rate of $1.22 per Euro 1.00, compared to $1.25 per Euro 1.00 in 2003.

Looking beyond the current business year, Kagermann said he expects SAP to continue growing its software revenue licenses "by double-digit numbers."

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