SAP software sales trail estimates on faltering Asia deals

Berlin: SAP AG, the largest maker of business-management software, reported first-quarter software sales that trailed analysts’ estimates after the company failed to close contracts in the Asia-Pacific region.

add_main_imageSales of new software licences, an indicator of future revenue, rose 3% to €657 million ($859 million), Walldorf, Germany-based SAP said on Friday. That was slower than the 9% growth in the previous quarter and fell short of the €726 million median of estimates compiled by Bloomberg.

Operating profit adjusted for some items rose 8% to €901 million, also missing estimates. SAP joins other software makers in reporting slowing traditional licence sales. Oracle Corp. on 20 March reported revenue and profit that fell short of analysts’ estimates as demand for Web-based programs hurt sales of its hardware and on-premise software.NextMAds

Still a notch better than Oracle’s straight miss and negative newsflow from other IT bellwethers, Thomas Becker, an analyst at Commerzbank AG in Frankfurt, said in a note. Not a great quarter either, but Q1 is always the smallest quarter and does not establish a trend.

SAP shares declined the most since 15 January, dropping as much as 3.5% to €57.55 and trading at €58.07 as of 9:35 am in Frankfurt on Friday. The stock has gained 18% in the past 12 months, valuing the company at €71.4 billion.

Leadership Transitions

Sales in the Asia-Pacific and Japan region were hurt by leadership transitions in some markets and will probably be back on track in the second quarter, SAP said. These markets have been overseen by Stephen Watts since January 2010.

Asia-Pacific is the only area where we had some execution issues, co-chief executive officer Jim Hagemann Snabe said on a conference call. A couple of countries have operated without the right leaders in place. That’s why we saw some misses in this quarter.

Software and cloud subscription revenue in the Asia-Pacific region fell 7% in the quarter, Snabe said. The region, which includes China, is growing in importance for SAP, accounting for 16% of sales last year. The US is SAP’s single biggest national market, producing 28% of its 2012 revenue.sixthMAds

Asia still poses the biggest growth opportunity among all of SAP’s regions, Snabe said in a Bloomberg TV interview.

Cloud Business

At the same time, the company’s cloud business is starting to make up for slowing on-premise growth. Including Web-based software, SAP grew 25% in the latest quarter, excluding currency swings, compared with a 2% decline at Oracle, Snabe said.

We gained significant market share particularly from our main competitor but also from others in the market, especially in database and cloud, he said.

SAP also won contracts against Salesforce.com Inc. and Workday Inc. in the Americas, Snabe said. The co-CEO said he’s not concerned about customers simply replacing SAP’s more profitable on-premise products with cloud versions.

This year, SAP began selling a faster version of its mainstay applications suite, hoping to gain a better foothold in the database market with its rapid Hana technology. The release will start to boost Hana sales, which tripled to €86 million in the quarter, toward the end of the year, Snabe said.

Snabe and co-CEO Bill McDermott are trying to assure investors SAP will continue to grow faster than the market after missing its profit forecast last year as it hired thousands of programmers and salespeople. The executives have resisted calls to acquire hardware manufacturers, choosing instead to go after makers of on-demand software and programs for mobile devices.

The global market for enterprise software will grow 6.4% this year and 6.7% in 2014 to reach $316 billion, researcher Gartner Inc. said last month. SAP has a target to increase revenue beyond €20 billion by 2015, compared with €16.2 billion last year. The company confirmed its forecast for 2013 on Friday. Bloomberg