SAP End of Year Results Reviewed

by Andrew James

In a nutshell SAP today announced that its fourth-quarter net profit rose 29%, but reported disappointing software sales growth.

The German based software company earned euro799 million (US$1.04 billion) in the three months up to Dec. 31st 2006, which was up from euro619 in the same period a year earlier. Software sales rose 7% to euro1.26 billion (US$1.64 billion). While they increased 13% in Europe and the Middle East, they remained static in the Americas and only rose by 2% in the Asia-Pacific region.

During the course of 2006 software sales increased 10% to euro3.07 billion (US$3.99 billion). This did fall someway short of the projected growth targets of 15% to 17%, however the company had already warned that software sales would come in around that level. They were forced to cut euro30 million (US$39 million) from its third-quarter software revenue sales after it amended a contract with an unidentified U.S. customer.

Net profit for the year was announced at euro1.87 billion (US$2.4 billion), which was up 25% from the previous year's euro1.5 billion.

"While we did not achieve all of our targets in 2006, we ended with solid growth at constant currencies for both product revenues and software revenues," Chief Executive Henning Kagermann said in a statement.

In a move that will cause it’s profitability to fall, SAP also announced that it will invest as much as 400 million (US$519 million) over eight quarters "in order to address additional growth opportunities in new, untapped segments in the midmarket."

As a result the company expects full-year operating margin for 2007 to be between 26% and 27%, compared with last year's 27.3%.; this will be the first time in 7 years that the companies operating margin has fallen.

SAP said it expects full-year software and software-related services sales to increase by between 12 and 14% in constant currency terms, compared with 12% last year.