SAP AG issued preliminary fiscal second-quarter results yesterday that indicated that it would fall short of analyst expectations in software license and total product revenues, as well as profits.
SAP said that total revenues -- which includes license, maintenance and other services -- for the three months ended June 30 are expected to come in at €2.20 billion when it reports final results on July 20. This would represent an increase of 9% in constant currencies compared with the second quarter of 2005, but would be well below the 13% spike posted in the year-earlier period. Operating profit is expected to reach €558 million, representing an increase of 13% compared to the second quarter of last year. That would be down materially from the 18% increase SAP tallied in the like period last year.
Software revenues in the period are expected to hit €621 million, representing an 8% increase (10% at constant currencies) compared to the second quarter of 2005. That would be off significantly from the 16% increase SAP reported in the like period last year. The falloff in expected license revenue performance comes as a surprise to analysts. They had expected software license revenue to come in at about €675 million, according to a Reuters' poll of 24 analysts.
SAP's Americas region continues to be a bright spot, the company said. The unit is expected to report software revenues of €239 million for the second quarter of 2006, representing an increase of 18% (21% at constant currencies) compared to the corresponding period last year. In the U.S., software revenues for the second quarter of 2006 are expected to have increased by 16% (20% at constant currencies) to €201 million compared to the second quarter of 2005.
In a press briefing yesterday, SAP Chief Executive Henning Kagermann told reporters that SAP had lost market share to its peers, a loss he estimated at 1 to 2 percentage points, Reuters reported.
SAP's corporate management team of Kagermann, Werner Brandt, CFO, and Léo Apotheker, president of customer solutions and operations, will be in New York on July 20 to provide further detail on the company's second quarter and first half 2006 results. They will be joined by Bill McDermott, CEO of SAP Americas.
SAP's disappointing preliminary Q2 results follow a strong first quarter, and are in stark contrast to the applications software-fueled growth recently reported by arch rival Oracle Corp. Benefiting from dramatically higher applications license revenues -- including a growth spurt from newly acquired Siebel Systems Inc. -- Oracle said total revenues in its recently concluded fourth quarter rose 25% to $4.8 billion compared to the same period last year.
Despite SAP's results surprise, the Walldorf, Germany, company reaffirmed its outlook for 2006. SAP still expects full-year 2006 product revenues to increase in a range of 13% to 15% compared to 2005. This growth rate is based on its expectation for full-year 2006 software revenue growth in a range of 15% to 17% compared to 2005. The company also expects full-year 2006 pro forma earnings per share, which exclude stock-based compensation, acquisition-related charges, and impairment-related charges, to be in a range of €5.80 to €6.00 per share. The outlook is based on an assumed U.S. dollar to euro exchange rate of $1.23 per €1.00.
That forecast didn't appease investors. SAP shares closed down 6.2% at €149.80 yesterday, after hitting a six- month low during the day of €145.39 in trading on the Frankfurt market, Reuters reported.