SAP Q4 revenue sinks 9 percent, net income drops 12 percent

But SAP sees a return to growth and improved profitability in 2010
  • Peter Sayer (IDG News Service)
  • 28 January, 2010 05:46

SAP reported a 9 percent year-on-year fall in revenue for the fourth quarter of 2009, with net income dropping 12 percent from its record level a year earlier. But the company sees a return to growth and improvements in operating income this year, it said Wednesday.

Revenue totalled €3.19 billion (US$4.57 billion as of Dec. 31, the last day of the period reported), down 9 percent from €3.49 billion a year earlier. Net income of €727 million was 12 percent down on the €830 million reported a year earlier.

"Q4 2008 was a record quarter, the best in the history of the business. That's the main reason for the decline," CEO Léo Apotheker said in a webcast news conference to discuss the results.

Software revenue fell 15 percent, to €1.12 billion, while revenue from software and software-related services slipped 4 percent to €2.57 billion.

One bright spot for SAP was its support revenue, which rose 7 percent year on year to €1.36 billion. The company angered many customers when it introduced its higher-priced Enterprise Support service, requiring customers to upgrade whether they needed its additional features or not. Last week, however, SAP gave in to those customers wanting to stick with Standard Support, allowing them to continue paying less for fewer features.

That won't pose a threat to SAP's support revenue stream, though, McDermott said.

We'll be fine," he said. "We anticipate that the majority of our customers will stay on enterprise support."

One reason for that is that Enterprise Support customers know how their support costs will evolve through 2016, as SAP raises the rate for existing customers from 18.36 percent of the software license fee to 22 percent according to a set schedule, whereas Standard Support charges are less predictable as they are subject to inflation, McDermott said.

In 2010, SAP will adopt International Financial Reporting Standards (IFRS), after years of following U.S. Generally Accepted Accounting Principles in reporting its results. The nature of SAP's activities means that the effect of the change on published figures will be minimal, Chief Financial Officer Werner Brandt said during the same news conference.

For the full year 2010, SAP expects software and software-related service revenue to increase by between 4 percent and 8 percent at constant currencies, from a 2009 base of €8.2 billion under IFRS, Brandt said.

It also expects to increase its full-year operating margin to between 30 percent and 31 percent at constant currencies, from 27.4 percent in 2009, he said.

The focus on margin is important, CEO Léo Apotheker said during the news conference. "We want to grow but we want to grow profitably," he said.

The company expects to begin hiring again this year, Apotheker said, although he declined to say how many jobs will be created. McDermott said the new hires will likely be in customer-facing roles such as sales, in fast-growing markets such as Europe, Brazil, India and China.

2010 will also be the year that Business ByDesign, SAP's software-as-a-service (SaaS) offering, goes mainstream, Apotheker said.

It's no secret that SAP had some problems with its initial rollout of the service, Apotheker said, but the company has been working closely with 100 initial customers to improve the experience. "

When you talk to them today, implementation is very fast, the customers are very satisfied, and the user interface is much better," he said.

"ByDesign, by mid-2010, will be ready for the volume business," Apotheker said, adding the caveat that "I don't think you should assume that in 2010 there will be major sales, so revenue won't be too high."

SAP will roll out the service first in Germany, France, the U.K., the U.S., India and China, selling directly, through partners and on the Web, according to McDermott. Since it will be sold on a subscription model, revenue will build slowly, he said.

Beyond that, Apotheker said he wants SAP to have a billion users by 2014, although he's hazy about exactly how and when that target will be achieved. One way to increase the number of people SAP can count as users will be to deploy SAP applications on new devices, or to define use of an application as including even the most tenuous of interactions, such as the sending or receiving of a text message on a mobile phone via SMS (Short Message Service).