SAP AG, the world's largest business-management software maker, predicted 2007 software revenue will expand at least at last year's pace.
Software and related services revenue will rise between 12% and 14% in 2007 excluding currency fluctuations, SAP AG said in a PR Newswire statement today. Growth on that basis was 12% last year, the company said, without giving a forecast for license sales. CEO Henning Kagermann wants to widen SAP's lead over Oracle Corp. and Microsoft Corp. through an overhaul of its software platform and to enlarge its $56 billion market by adding smaller clients.
That strategy hasn't paid off as the Walldorf, Germany-based company's Q4 license sales grew at only half the pace analysts had predicted. „Savvy buyers of software have more flexibility these days than they had in the past,” said Bruce Richardson, an analyst at Boston-based AMR Research who has been following the industry since 1991. „The competitive environment is going to remain tough.” He spoke before today's release.
Q4 net income rose to €799 million ($1.04 billion) from €619 million a year earlier, SAP said today. Analysts had predicted profit of €726 million, the median of 13 estimates in a Bloomberg survey. Shares of SAP fell the most in four years on January 12 after the company said Q4 license sales grew 7%, the smallest gain in two years. License revenue for Asia and the Americas both missed predictions.
The Q4 is the most important period for software companies as they push clients to spend the rest of their annual budgets. SAP generated about 40% of annual license revenue in the final quarter by selling software that manages processes including payroll and inventory. SAP is switching its focus to medium- and small-sized customers. Last quarter, SAP created a unit overseeing sales, marketing and operations for smaller customers and named Asia Pacific head Hans-Peter Klaey to run the division.
The company said today it will invest an extra €300 million ($391 million) to €400 million over eight quarters to build a new business focusing on smaller customers. SAP said its operating margin will drop by as much as 1.3 percentage points this year from 27.3% in 2006 as a result of that.
Kagermann, who had previously forecast a 2007 operating margin of 30%, said in October the company may go for growth opportunities instead higher profit margins. SAP aims to more than double the number of customers to 100,000 by 2010 and increase orders from smaller clients to as much as 45% of the total from about 30% now.
Products SAP plans to introduce in the current quarter include software based on the so-called enterprise service-oriented architecture, which allows companies to customize how to manage tasks such as billing. Kagermann told an investor conference in London on November 7 that he doesn't expect a slowdown in 2007.
The CEO's employment contract runs out at the end of this year after Kagermann turns 60. SAP co-founder and supervisory board Chairman Hasso Plattner told Sueddeutsche Zeitung in an interview published on January 10 he wants Kagermann to continue as CEO for at least an extra year. Last year, SAP predicted license sales would rise between 15% and 17%.
The company missed analysts' estimates in the Q2, told investors in October that it won't meet the high end of the forecast, and later missed the range altogether. The Q4 miss was SAP's first for that period in seven years, according to Societe Generale analyst Stefan Slowinski. (Bloomberg)