Fueled by strong demand for its products in the U.S. and surging sales of its ERP, CRM, and supplier relationship management (SRM) products, SAP AG reported a 15% increase in revenues and a 14% bump in net income for the fiscal fourth quarter ended December 31.
The strong quarter boosted SAP's results for the full year, with revenues growing by 13% to €8.5 billion in 2005, and net income increasing by 14% to €1.5 billion.
Software license revenue was the primary driver of SAP's top-line growth in both the fourth quarter and the year. For the year, software revenue was up 18% to €2.8 billion. And, for the fourth quarter, software revenues grew 18% to €1.2 billion.
"2005 was an excellent year for SAP," said CEO Henning Kagermann in prepared remarks during a meeting with analysts to discuss the company's financial results. "We continued to demonstrate that organic growth is a very effective way to achieve success in this industry, and that it benefits our customers, partners, and shareholders," added Kagermann in a clear reference to rival Oracle Corp., which over the past 18 months has significantly grown its enterprise applications business through acquisition.
SAP's fourth-quarter and full-year growth rates were led by its Americas region, where the company has squared off most directly against Oracle. In the Americas, SAP's fourth-quarter revenue grew by 30% to €970 million. Software revenue in the Americas in the fourth quarter increased 34% to €425 million.
For the full year, SAP's revenues from the Americas grew 24% to €3 billion. By comparison, revenues from the company's European region grew 7% for the year, while revenues from Asia grew by 15% for the year.
With the strong fourth-quarter results, software license revenue from SAP's Americas region has doubled over the past two years, said Leo Apotheker, president of customer solutions and operations, in remarks to analysts following release of SAP's results. SAP's revenue from North American operations has grown at double-digit rates for 20 consecutive quarters, Apotheker said.
SAP's customer relationship management products led the company's software sales growth. CRM software revenue grew 20% year over year to €602 million. ERP and SRM software sales were also strong, with ERP growing by 17% and SRM growing by 19% for the year. Only sales of SAP's PLM products failed to grow, slipping 3% during 2005 to €162 million. Sales of its NetWeaver products grew by 132% for the year to €176 million.
The strong results helped SAP increase its market share versus its principal competitors, the company said. Compared with a peer group consisting of Oracle Corp., Siebel Systems Inc., and Microsoft Corp.'s Business Solutions group, SAP said on a worldwide basis it gained 7% of market share in the fourth quarter compared to the year-earlier period. SAP claims a market share of 62% compared to this peer group.
SAP officials, however, said that in future financial statements, the company will no longer provide peer group market share trend information, nor will it report software sales by product area. The reason, said CFO Werner Brandt, is that while the information was originally provided to allow for comparisons with SAP's best-of-breed software competitors, "the best-of-breed vendors are no longer there. So it's no longer necessary to separate solution revenues," Brandt said.
Apotheker noted that SAP has been able to increase its market share despite Oracle's growth-by-acquisition strategy, which is tied together by its Fusion initiative. "SAP is the clear market leader in the U.S. Acquisitions won't be able to change that," said Apotheker, who added that SAP in 2005 sold more application licenses in the U.S. than its competitors combined sold worldwide.
Apotheker said SAP has attracted 200 former Oracle customers through its Safe Passage marketing program. "We have lost zero customers to Oracle's OFF SAP program," Apotheker said.
For 2006, SAP predicted that its product revenues -- including software and maintenance -- will increase by between 13% and 15% compared to 2005. Software revenue alone will increase by between 15% and 17%, SAP predicted.