Update: SAP first-quarter profit climbs 10 percent

SAP has posted its financial results following a turbulent quarter for the company, reporting a 10 percent jump in profit on increased sales of its software and support services.

Net income for the first quarter was €310 million ($413 million as of March 31, the last day of the period reported), up 10 percent from €282 million for the same quarter last year, SAP said on Friday.

Total revenue climbed 6 percent to €2.17 billion, from €2.04 billion in the first quarter of 2006. Revenue from software and related services increased 9 percent to €1.52 billion, from €1.39 billion a year earlier.

The Walldorf, Germany, company ended the quarter with 8,500 customers on its SAP ERP (enterprise resource planning) applications, more than double the number a year earlier, while sales of its NetWeaver integration software climbed 40 percent to €156 million, SAP said.

SAP CEO Henning Kagermann called the figures “a very good start” to 2007. “We see strong demand in the Americas … Asia is strong as always, and Europe is a mixed picture,” he said in a conference call.

The results suggest that SAP has lifted its software business after a disappointing end to 2006, when growth was sluggish in the Americas and Asia-Pacific.

For the first quarter, sales from software and related services increased 12 percent in the Americas, to €570 million, SAP said. Asia-Pacific sales increased 4 percent to €197 million, while sales in Europe, the Middle East and Africa increased 9 percent to €752 million.

The gains overseas were dampened by the strength of the euro against other currencies, which Kagermann argued should be taken into account when comparing growth rates between European and U.S. companies.

“The slide in the dollar has masked what would otherwise have been a strong riposte to all that has gone before,” commented David Bradshaw, an analyst at Ovum Ltd. in the U.K.

The results follow a busy quarter for SAP in which it was sued by its biggest rival and lost one of its most prominent software strategists. The company has also been battling slower revenue growth as it competes fiercely with Oracle.

On March 22 Oracle filed a lawsuit against SAP, accusing it of “corporate theft on a grand scale.” Workers at SAP’s TomorrowNow subsidiary allegedly stole documents and software that Oracle uses to provide support services. Its goal was to offer cut-rate support service to Oracle customers, according to Oracle.

Kagermann said Friday that SAP did “nothing wrong” and does not plan to settle the case with Oracle. Instead it will begin its formal defense in the coming weeks, he said.

A week after the Oracle lawsuit was filed, Shai Agassi, president of SAP’s product and technology group, announced plans to leave the company on April 1. Agassi had been in line to become joint CEO of SAP when Kagermann left that position, and was unhappy when Kagermann was asked to stay in his job for an extra two years.

SAP has since realigned its management and said it has enough expertise in the company to weather Agassi’s departure.

SAP expects to book the first revenue from a new suite of on-demand applications for the midmarket, called A1S, in the first quarter of 2008, Kagermann said on Friday. The software is designed to provide a faster and cheaper way for companies to deploy ERP applications.

It’s a major initiative on which SAP will spend €300 million to €400 million over the next two years. The company spent the first €20 million of that sum in the first quarter, Kagermann said.

“A user doesn’t want a glitzy user interface but one that is intuitive to learn,” he said of A1S. “And we will bring the cost of ownership down considerably, and make people believe our products are right for the midmarket segment.”

Some customers are already using the product, according to SAP spokesman Frank Hartmann, although its formal launch is not expected until later this year. “An exact date for such an endeavor is a bit difficult,” Kagermann said.

SAP’s forecast for the full year remains unchanged, with expected revenue growth from software and related services of 12 to 14 percent at constant currency.

“Software and software related services” is a new item in SAP’s statement this quarter, reflecting the growth of on-demand software in its business. The company updated previous statements in January to so it can make meaningful comparisons.