SAP Software Sales Miss Estimates on Lower Demand in Asia

April 19, 2013 Leave a comment

SAP Software Sales Miss Estimates on Lower Demand in Asia

SAP AG (SAP), 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.

Sales of new software licenses, an indicator of future revenue, rose 3 percent to 657 million euros ($859 million), Walldorf, Germany-based SAP said today. That was slower than the 9 percent growth in the previous quarter and fell short of the 726 million-euro median of estimates compiled by Bloomberg.

Operating profit adjusted for some items rose 8 percent to 901 million euros, also missing estimates. SAP joins other software makers in reporting slowing traditional license sales. Oracle Corp. on March 20 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.“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 have gained 21 percent in the 12 months through yesterday, valuing the company at 73.3 billion euros.

Sales in the Asia-Pacific region were hurt by leadership transitions in some markets and will probably be “back on track in the second quarter,” SAP said.

‘Some Misses’

“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 percent in the quarter, Snabe said. The region, which includes China, is growing in importance for SAP, accounting for 16 percent of sales last year. The U.S. is SAP’s single biggest national market, producing 28 percent of its 2012 revenue.

Still, the company’s cloud business is starting to make up for slowing on-premise growth. Including Web-based software, SAP grew 25 percent in the latest quarter, excluding currency swings, compared with a 2 percent decline at Oracle (ORCL), 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.

Targets Reiterated

SAP also won contracts against Salesforce.com Inc. (CRM) and Workday Inc. (WDAY) 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 euros 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 percent this year and 6.7 percent in 2014 to reach $316 billion, researcher Gartner Inc. said last month. SAP has a target to increase revenue beyond 20 billion euros by 2015, compared with 16.2 billion euros last year. The company confirmed its forecast for 2013 today.

To contact the reporter on this story: Cornelius Rahn in Berlin at crahn2@bloomberg.net

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Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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