Enterprise applications leader SAP today reported on its third-quarter financial performance, revealing 9% growth in overall revenue and a 10% upswing in net income.
Total revenue for the quarter, ended Sept. 30, reached €2.42 billion, up 9% compared with the third quarter of last year. Specifically, software revenue climbed 11% from the year-prior quarter to €715 million. The numbers showed a slower pace of growth for SAP than in the second quarter, when total revenue grew 10% and software sales jumped 18%. Total revenue was flat compared with the second quarter of this year.
SAP's bottom line fared well in the third quarter, climbing 10% to €408 million from €370 million in the prior third quarter. Meanwhile, earnings per share grew 13% to $0.34, up from $0.30.
Notable customer wins in the quarter included Apple, which was already an SAP user but expanded its relationship through global enterprise agreements, and the global retailing juggernaut Wal-Mart. The latter implementation was a global rollout that covered financials. SAP officials declined to provide more specifics.
The company's nine-month revenue total of €7.01 billion was a 9% improvement on the prior year's first nine months, when SAP took in €6.45 billion. For the full year, SAP expects software and software-related revenue to beat out last year's total by 12% to 14%.
Though SAP's year-over-year growth in software sales has been solid, it falls short of the numbers put up by rival Oracle in recent quarters. In its fiscal 2008 first quarter, for instance, Oracle saw a 36% year-over-year increase in applications revenue and a 65% improvement in new license sales.
A strong percentage of Oracle's growth owes to products brought in-house through large acquisition deals, a business strategy SAP mostly shunned until a couple of weeks ago, when it bid $6.78 billion to purchase Business Objects, a leader in the business intelligence software market.
On a conference call today to discuss SAP's quarterly numbers, CEO Henning Kagermann maintained that the offer to buy Business Objects fits with SAP's knitting. SAP's plan to outpace the growth of the enterprise applications market will mostly rely on organic growth, he said, with a small area of exception. Its traditional business of horizontal and vertical applications will fuel stable growth, he said, while "accelerated growth" will derive from three sources: the NetWeaver business process platform, the small and mid-sized business segment, and greater use of SAP applications among business users.
"The business user segment is where acquisitions, along with organic growth, play a bigger role in our strategy," Kagermann said. The pending Business Objects acquisition, he noted, follows the company's business logic — giving SAP users the best software capabilities. He also hinted that some of Business Objects' technology would be a good fit in SAP's new Business ByDesign offering, though he did not specify which applications or functions, citing the pending nature of the purchase offer.
The Business ByDesign product looms large in SAP's efforts to boost its customer base and revenue over the next two-plus years. That success will hinge on SAP's ability to carve a new customer base out of a space it already occupies — the small to mid-sized market. In the third quarter, SAP's two other mid-market products, BusinessOne and All in One, performed well, growing their customer bases 39% and 18%, respectively.
Still, SAP sees the SMB pie getting bigger and making room for Business ByDesign, which is tailored to companies with 100 to 500 employees. "It wasn't designed with traditional categories, such as enterprise resource planning, customer relationship management, and others, in mind," Kagermann said. "It was designed for business processes across the entire organization, with user interfaces tailored to people's roles."
Kagermann described a number of milestones for the new product: SAP brought the first client live in September and now has 20 live clients. By the end of the year, he said, SAP would like to have 100 live clients. In the first quarter of next year, the company will conduct the first upgrade on the live product, and by the end of 2008, SAP hopes Business ByDesign will be profitable.
On today's conference call, SAP executives also discussed Oracle's recent bid for middleware provider BEA Systems. In response to an analyst's question, Kagermann said Oracle's offer will not pressure SAP to make an acquisition to augment its NetWeaver business process platform. He described SAP as "pretty happy" with NetWeaver, and noted that the company is adding 900 productive new NetWeaver systems per month.