Riding continued strong demand for its products in the Americas, SAP AG today reported another strong quarter, with overall revenue growing 18% and software revenues rising 22% in the period ending March 31, compared with the like period a year ago.
In other news, during a conference call with securities analysts following the release of the company's first-quarter results, CEO Henning Kagermann said SAP plans this year to deliver a hosted version of its All-in-One ERP suite for mid-market companies. The move follows the introduction earlier this year of mySAP CRM On-Demand. While SAP officials have previously indicated their interest in fielding a hosted version of All-in-One, it was the first time the company had indicated a timetable for doing so.
In the quarter ended March 31, SAP reported total revenues of €2.04 billion and net income of 282 million Euros. The net income figure was 11% higher than the €254 million SAP earned in the first quarter of 2005. SAP had software revenues for the quarter of €529 million compared to €434 million in the first quarter last year.
Kagermann called the results "another strong quarter with solid growth in license and product revenues."
SAP's first quarter results were led by the performance of the company's Americas region, where software revenues grew 47% over the first quarter of 2005 to €226 million. The Americas region results were somewhat skewed, however, by what SAP officials described as a very large "unique" transaction that took place during the quarter in South America. SAP officials did not identify the customer or the size of the deal. In the U.S., software revenues rose 25% during the quarter to €165 million.
SAP's software revenue growth rate in the U.S. this quarter was somewhat slower than what the company has experienced in recent quarters. Leo Apotheker, an SAP executive board member, however, told analysts that the company's U.S. sales will "continue to be one of the growth engines for SAP in 2006."
Software revenue in SAP's Europe/Middle East/Africa and Asia/Pacific regions grew 14% and 8%, respectively, during the period. Asia/Pacific results were hurt by Japan, where SAP saw an 18% software revenue decline for the quarter. Kagermann said SAP does not believe the result represents a long-term trend for the company in Japan, and that SAP expects improvement.
SAP's expenses for the quarter grew by 20%, led mostly by the company's ongoing staffing increases. Kagermann said SAP has hired 3,400 employees in the past year. Fifty-six percent of those were hired into research and development roles; 34% of the new hires were added in India and other low-cost countries. Kagermann said SAP plans to hire an addition 3,500 staff this year.
In light of the first-quarter results, SAP said it is sticking to its previously announced prediction for its business for the remainder of 2006. Software revenues will grow at a 15% to 17% rate in 2006, and product revenues -- including software and maintenance -- will climb by between 13% and 15%, SAP said.
SAP, meanwhile, continues to generate cash. The company had $793 million of free cash flow in the first quarter, some of which was used for stock buy-backs and some -- about $150 million -- for acquisitions. SAP CFO Werner Brandt said the company expects to continue to make what he called "fill-in acquisitions" in 2006. Kagermann, however, said that SAP's strategy will continue to grow primarily organically, unlike principal competitor Oracle Corp.
SAP officials said the company believes it accounts for 21.4% of the entire $16 billion market for enterprise software. Kagermann said SAP believes that that percentage has increased slightly over the past year. SAP pegged Oracle's share at 8.8% and that of Microsoft Business Solutions at 4.6%
"This means we are 2.5 times larger than our next largest competitor," Kagermann noted.
SAP's push into the mid-market continues to gain steam, Kagermann said. At the end of the first quarter, orders from small and mid-market customers represented 30% of SAP's total. Over the past year, SAP grew the number of channel partners by 40% and the number of customers soldby that channel by 45%, Kagermann said.
The planned hosted version of the All-in-One product is intended to further that trend. Kagermann said SAP has not yet decided how much of the All-in-One suite to make available via the on-demand, hosted model.
"By the end of the year we will make that decision," Kagermann said. "Our intent is not to host just a few functions but to look at the suite."