SAP Has Better-Than-Expected Quarterly Profit

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October 14, 2011, 10:54 AM EDT By Cornelius Rahn

(Updates with litigation-related provision in seventh paragraph.)

Oct. 14 (Bloomberg) -- SAP AG, the largest maker of business-management software, reported third-quarter earnings that beat analysts’ estimates as new mobile and real-time analytics offerings boosted sales.

Operating profit, based on non-international financial reporting standards, rose 23 percent to 1.13 billion euros ($1.57 billion) while sales on that basis gained 12 percent to 3.41 billion euros, the company said today. The average analyst estimate in a Bloomberg survey was for earnings of 1.01 billion euros on revenue of 3.31 billion euros.

Co-Chief Executive Officers Jim Hagemann Snabe and Bill McDermott, whose contracts were extended in July to 2017, aim to boost SAP’s annual revenue to 20 billion euros by 2015, driven by mobile products, services and the real-time analytics technology Hana. While the Walldorf, Germany-based company today reiterated its full-year forecast, Evolution Securities analyst Roger Phillips said results were better than expected.

“It’s a big beat,” said Phillips, who has a “neutral” recommendation on SAP shares. “It now becomes a lot more clear” how the company plans to achieve its targets, he said.

SAP shares rose as much 3.7 percent to 42.04 euros and were up 2.6 percent as of 4:08 p.m. in Frankfurt. The shares have gained 9.2 percent this year, giving SAP a market value of 51.1 billion euros. Oracle climbed 1.8 percent to $31.69 as of 10:09 a.m. in New York.

Programming Reliance

SAP is betting on innovation in programming rather than on large purchases or adding hardware to battle Redwood City, California-based Oracle Corp., which ranks second in business software. SAP beat Oracle in software license sales in its second quarter. The U.S. company is scheduled to report earnings for its fiscal second quarter on Dec. 16.

SAP boosted its net result by 723 million euros after cutting a provision related to potential damage payments stemming from a legal fight with Oracle over copyright infringement by SAP’s former TomorrowNow unit. A U.S. federal judge last month threw out a $1.3 billion verdict, reducing the amount that SAP would have to pay to $272 million or allowing for a new trial. The company didn’t provide a figure for net income in today’s statement.

Pipeline

McDermott said in July that “the pipeline for Hana is the biggest in the history of SAP.” Abbreviated from High- Performance Analytic Appliance, the in-memory computing product is designed to speed up analysis of business data. It comes on servers from companies such as Hewlett-Packard Co., International Business Machines Corp., Dell Inc. and Cisco Systems Inc.

SAP, which makes payroll management, business intelligence tools and software that helps companies reduce their carbon emissions, also provides software for the order fulfillment behind Apple’s iTunes download system. Non-IFRS software and software-related services revenue rose 16 percent in the first nine months, the company said today.

This year, SAP won the U.S. National Hockey League team San Jose Sharks as a user of its on-demand software Business ByDesign, while Colgate-Palmolive Co. and Lenovo Group Ltd. started using the Hana in-memory technology.

“SAP’s pipeline remains very strong and companies continue to invest in information technology, in particular in innovative software solutions,” the company said today, adding that the “ongoing uncertain macroeconomic environment” prevented it from raising its targets.

The company said it still predicts that non-IFRS software and software-related services revenue growth will reach the top end of a range of 10 percent to 14 percent in the full year.

SAP said it now expects the effective IFRS tax rate to be 28.5 percent to 29.5 percent this year, up from 22.5 percent in 2010.

--Editors: Simon Thiel, Robert Valpuesta, David Risser

To contact the reporters on this story: Cornelius Rahn in Frankfurt at crahn2@bloomberg.net

To contact the editor responsible for this story: Kenneth Wong at kwong11@bloomberg.net

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