Update: SAP profit drops 6 percent in fourth quarter

SAP reported a 10 percent rise in revenue for the fourth quarter, but earnings fell 6 percent compared to a year earlier, dragged down in part by the cost of launching Business ByDesign, a new offering for the mid-market, the company said Wednesday.

Revenue for the fourth quarter totalled €3.24 billion ($4.77 billion as of Dec. 31, the last day of the period reported), up 10 percent from €2.95 billion a year earlier, but net income fell 6 percent to €756 million.

Software and related services revenue grew at 13 percent year on year, while consulting activities, representing around a fifth of SAP’s revenue, remained stagnant.

For the full year, revenue rose to €10.25 billion, up 9 percent from €9.39 billion, while net income rose to €1.92 billion, up 3 percent from €1.87 billion.

The results do not include any revenue gains from SAP’s $6.8 billion acquisition of business intelligence software vendor Business Objects, which the companies only completed on Jan. 16, 2008, although they do include €61 million in acquisition-related costs.

SAP’s operating margin for the year fell from 27.4 percent in 2006 to 26.7 percent in 2007, but if the effects of exchange rate fluctuations and the company’s investment in Business ByDesign were excluded, the operating margin would have risen to 28.2 percent, Chief Financial Officer Werner Brandt said in a conference call.

Developing Business ByDesign cost the company €125 million in 2007, €40 million of it in the fourth quarter, and the company expects to spend at least a further €175 million in 2008. An additional €50 million of expenditure will fall in late 2008 or early 2009.

Sales and related services for subscription-based products like the new ByDesign contributed just €53 million in the fourth quarter, up 47 percent year on year.

Looking ahead, CEO Henning Kagermann expects mid-market products like ByDesign to boost growth in 2008, he said during the conference call.

Another growth driver will be SAP’s acquisition of Business Objects, which will help the company increase its penetration of the business user sector, Kagermann said.

“For SAP and Business Objects, this means cross-selling potential,” said Deputy CEO Leo Apotheker.

The company sees potential for growth in the banking market, where concerns about the U.S. subprime mortgage crisis are driving demand for more effective governance and business intelligence systems, Apotheker said.

Among the nine new products that SAP and Business Objects jointly announced on Jan. 16 were modules for financial performance management, governance, and risk and compliance.

SAP expects full-year revenue from software and software-related services to grow at between 24 percent and 27 percent. Excluding the contribution of Business Objects, SAP’s existing activities will contribute between 12 and 14 percentage points, the company said.

Business Objects also announced its fourth-quarter results Wednesday, reporting a 20 percent rise in revenue to $444 million for the quarter. Maintenance revenue grew at 29 percent, to $177 million. Net income fell 60 percent, to $14 million, a change that the company attributed mainly to an increase in its tax provisions pending the outcome of audits. Operating income fell 20 percent to $45.25 million.

For the full year, revenue rose 20 percent to $1.51 billion. Operating income slipped 11 percent to $104 million and net income 29 percent to $53.6 million. Business Objects, now a majority-owned subsidiary of SAP, did not issue projections for 2008.

Later Wednesday, SAP announced the resignation of Business Objects’ founder, chairman, and chief strategy officer Bernard Liautaud. SAP plans to offer him a seat on the board in June.