SAP net profit up 49 percent on lower revenue

FRANKFURT, GERMANY — German business software maker SAP reported a 49 percent jump in fourth quarter net profit on Thursday and said it increased its market share even as revenue dipped slightly.

Net profit for the quarter was $497 million as of Dec. 31, the last day of the period being reported. Revenue dipped 2 percent, but would have been up 5 percent at constant currency rates, SAP said in a statement.

“IT budgets are tight but they are there,” said Henning Kagermann, chief executive officer and co-chairman of SAP, speaking at a news conference here Thursday. “There is a huge need for software.”

As an example, Kagermann pointed to WorldCom, which recently signed a large contract with SAP “to increase efficiency in its operations.”

WorldCom is a good example of a company “looking for quick solutions to address a number of pain points,” Leó Apotheker, president of global field operations at SAP, said in an interview with IDG News Service.

Excluding extraordinary gains, the effect of losses at U.S. partner Commerce One and other costs related to acquisitions and investments, net profit for the quarter rose 19 percent, SAP said.

Kagermann said that while SAP’s services business continues to grow, it will continue to take a backseat to products. “We are a product company,” he said. “We want to increase our product sales. Our service sales will follow.”

SAP claims to have increased its share of the worldwide business application software market to 50 percent from 41 percent in 2001, based on full year 2002 license revenue. SAP compares itself to i2 Technologies, J.D. Edwards, Oracle, Peoplesoft and Siebel Systems.

SAP also says it is now the top vendor in the U.S. , even though the Walldorf, Germany , vendor reported an 8 percent drop in full year revenue in the Americas . SAP is feeling the effects of the weaker U.S. dollar. At constant currency rates revenue in the Americas was up 2 percent, the company said.

In the fourth quarter, CRM (customer relationship management) software accounted for one third of SAP’s total sales, according to Kagermann. CRM sales have been growing steadily since the second half of 2002, he said, without providing figures. The U.S. was a large contributor to this growth, he said.

Sales to the public sector, Kagermann said, accounted for around 9 percent of total sales in 2002. “We expect sales to increase to 15 percent,” he said, without giving a timeframe.

Public sector spending on software is particularly strong in the U.S. , Kagermann said.

Conceding that the U.S. market has “dramatically” declined as a result of the economic downturn, Kagermann said that SAP has “nevertheless done much better than the home players.”

Cost-cutting played a big role in the company’s profitability, according to Kagermann. SAP cut personnel, reduced the number of external consultants, trimmed travel costs and rationalized its facilities by combining locations, he said.

“Despite our hiring freeze, we have hired people for product development and in some select areas of sales,” Kagermann said. “All hiring must be approved by the board, and although we will hire people, we will do so very selectively.”

In 2003, SAP expects to continue to gain market share and increase profitability.

“Although it is very difficult to make a long-term forecast, I believe the IT industry will return to double-digit growth once the economic slump is over,” Kagermann said.