Update: SAP reaches 2004 sales target, sees more growth

German business software vendor SAP increased software license revenue 10 percent in 2004 and forecast revenue to gain as much as 12 percent this year.

SAP also plans to develop a new business process platform, based on the company’s NetWeaver integration platform, it announced at a news conference in Frankfurt on Wednesday.

Full-year software license revenue in 2004 increased 10 percent to €2.4 billion ($3.27 billion as of Dec. 31, the last day of the period reported) from €2.1 billion the year before. The company had estimated a 10 percent increase at the start of the year.

Software license revenue in the U.S., SAP’s fastest growing market, increased 27 percent to €625 million in 2004 from €491 million the previous year.

Software revenue in the EMEA (Europe, Middle East and Africa) region rose 4 percent for the year, after a strong second half. It was up 5 percent in Germany, SAP’s home market.

In Europe, the company expects to outperform the industry growth in 2005, according to Léo Apotheker, president of global field operations. Analysts estimate the European market to grow between zero percent and 4 percent, he said.

In the Asia-Pacific region, including Australia, SAP increased software revenue 9 percent in 2004 buoyed by strong demand for its products in China and India. However, revenue in Japan dipped 15 percent.

Commenting on Oracle’s purchase of PeopleSoft, Apotheker said that even if the deal is now over for lawyers and investors, “it’s not for customers.” He pointed to the new Safe Passage initiative, which offers service and discount incentives for PeopleSoft customers to migrate to SAP.

SAP unveiled the initiative one day after Oracle announced plans to build the new Fusion applications suite as a migration point for its Oracle, PeopleSoft and J.D. Edwards applications.

SAP’s software sales in 2004 continued to be driven by a high volume of midsize and smaller deals, said Chief Financial Officer (CFO) Werner Brandt.

Total revenue for the year, including services, came in at €7.5 billion, up 7 percent over 2003 when it was €7 billion. Net income for 2004 increased to €1.3 billion from €1.1 billion, or €4.22 per share, compared to €3.47 per share the year before.

Research and development (R&D) expenditure in 2004 was up 6 percent to €1 billion from €951 million the year before, according to Brandt. Around 600 software engineers were hired last year in India alone, he said.

The Walldorf, Germany, company reported a strong fourth quarter with net income up 29 percent compared to a year earlier. Net income in the last quarter of 2004 was €542 million, or €1.74 per share, compared to €420 million, or €1.35 per share, in the same quarter of the previous year, SAP said.

Revenue for the quarter totaled €2.4 billion, up 8 percent compared to the €2.2 billion in the same period a year earlier.

Chief Executive Officer Henning Kagermann called 2005 a “year of investment” for the company. SAP will invest in “the development of new products” and in people to spur this development, he said.

The company plans to hire 3,000 people in 2005, according to Kagermann. While around 20 percent of the new hires will be in Germany, software engineers in India will be a main focus, he said.

At the end of 2004, SAP employed 32,205 people, compared to 29,610 at the end of the previous year.

Kagermann said the company aims to grow organically, but will consider “smaller fill-in acquisitions” to fill gaps in its growing technology portfolio.

By 2007, SAP plans to have all its applications running on a new platform, to be based on the company’s NetWeaver integration platform. The new Business Process Platform, Kagermann said, will lead to an “industrialization of the software industry” in a way similar to the industrialization of the auto industry.

“Just like car markers, we want to be able to reuse components,” Kagermann said. This approach will allow SAP to speed up product development and make more cost-efficient use of its resources, he said.

At the same time, the Business Process Platform will meet a need of customers for ready-to-run applications, which will not require them to realign their business processes.

“Customers increasingly view business software as a means to gain a competitive edge,” Kagermann said. “Our plan is to deliver them a platform on which they can develop and run their own applications or buy applications developed by us.”

SAP will dedicate around 1,000 software developers to the new Business Process Platform, according to Kagermann.