SAP AG logged another impressive quarter of financial results, with strong software sales in the United States helping the industry powerhouse beat Wall Street expectations to post a 16% gain in second-quarter earnings along with a 13% bounce in overall revenue.
For the quarter ended June 30, SAP reported net income of €289 million on sales of €2.02 billion, up from earnings of €249 million on €1.8 billion in sales in like period last year. Software sales for the second quarter were up 16% as well, for a total of €576 million compared to €497 million in the like period last year.
The U.S. region remained the sweet spot, enjoying a 27% year-over-year gain in sales at constant currencies.
While software revenue in Asia/Pacific and the EMEA held strong, Germany, in particular, was a weak spot, declining 13% over the same period last year. SAP officials attributed the decline to delayed purchases due to impending elections and said they expected to see a recovery in the area during the second half of 2005.
SAP officials called the strong showing for the first half of 2005 no surprise, but despite the better-than-expected gains, they reiterated their guidance of software revenue growth in the 10% to 12% range for the whole 2005. SAP is leading its peer group when it comes to growth, officials claimed, thanks to a shift away from large deals to a more stable and repeatable volume business and growing acceptance of its roadmap for next-generation software that delivers both business innovation and total cost of ownership.
"Companies are not only looking to optimize operations through IT, but recognizing that IT is the key vehicle to make them more competitive," said SAP CEO Henning Kagermann, during the Q2 financial press conference. "They're now looking to companies to provide software to make operations more efficient, but which also have the vision to help them grow faster in the future."
The centerpiece of SAP's strategy to do just that is its NetWeaver business process platform and Enterprise Services Architecture (ESA), which SAP has claimed will deliver the flexibility to help businesses innovate over the next five to 10 years. SAP said it was well underway with fulfilling its roadmap, with next quarter to be an important milestone thanks to the planned release of the entire SAP business application suite and all vertical solutions on the NetWeaver platform.
Even from a small revenue base, officials said revenue from NetWeaver and related products were up sharply for the second consecutive quarter, increasing by 89%.
In the meantime, SAP officials highlighted some key areas of growth, including its strengthened position in the SMB (small and mid-size business) market, which officials called "a strategic battleground." SAP claims to have has 13,700 customers and 1,600 indirect partners in the SMB space, with 2,400 of those customer wins coming in the first half of 2005, and SMB customers accounting for 30% of all order entry in Q2 (based on rolling four quarters.)
The company's Safe Passage program to a lure Peoplesoft and JD Edwards customers to SAP is also enjoying strong success, officials said. SAP said it has inked 21 deals for Safe Passage this year, including ones with Samsonite and Amgen, and the pipeline is "growing exponentially," they said.
As for its presence in various industry segments, SAP officials said growth remained strong in traditional markets like oil and gas and aerospace and defense, but called out the retail segment as one area where it was seeing some significant traction.
With the exception of CRM, SAP reported gains in software revenue for all categories for the quarter. Software sales related to ERP increased 19% over Q2 2004 to €243 million euros, representing 42% of total software revenues. SCM sales were up 11% (to €119 million), while CRM sales dipped 3% to total €107 million for the quarter.
With SAP claiming a percentage point or two gain in market share each quarter, officials contend say the software vendor firm is squarely in the drivers seat. "We believe that the increased investments in our technology and products have provided SAP with a sizeable competitive lead in delivering the next-generation software solutions," said Kagermann, in a prepared statement. "Following our ESA roadmap, we will deliver the entire mySAP Business Suite on SAP NetWeaver in the next few months. This puts SAP in the clear lead as being the first company to provide a full suite of SOA-based software solutions to the market."