SAP AG today reported strong financial results for its recently concluded second quarter as customers began to overcome concerns over the slowing economy and last year’s acquisition of business intelligence software provider Business Objects continued to bolster SAP’s growth.
The announcement of SAP’s strong financial performance followed yesterday’s news that rival Oracle Corp., as promised, has expanded its 16-month-old corporate theft lawsuit against SAP, charging that the company’s top executives, including Co-CEO Henning Kagermann, knew of the allegedly illegal business practices of third-party software maintenance provider TomorrowNow even before deciding to acquire the company in 2005.
SAP reported software revenue of €898 million in the second quarter ended June 30, 2008, an increase of 25% compared with the second quarter of 2007. SAP reported a 21% rise in software and software-related service revenue to €2.06 billion. Total revenue rose by 18% to €2.86 billion.
However, the company’s net income for the period fell 9% to €408 million. SAP attributed the lower earnings to higher operating and one-time expenses during the quarter. For example, SAP paid €11 million during the period to integrate Business Objects into SAP’s systems and processes. SAP also paid €24 million as part of its patent infringement suit settlement with i2 Technologies Inc. In addition, SAP wrote off €52 million worth of deferred support revenue related to the Business Objects acquisition.
Despite the rising operating expenses and one-time charges, Kagermann told financial analysts today, “We are pleased to report another strong quarter.”
Kagermann said the strong revenue growth enabled SAP to increase its share of the $38.1 billion enterprise software market to 33.7% during the quarter, a rise of 1.1%. “We continue to outperform the market with organic growth even during the integration of Business Objects,” he said.
SAP Co-CEO Leo Apotheker attributed SAP’s renewed strong revenue growth to a slackening of customer concerns about the slowing economy, particularly compared with this year’s first quarter. In that quarter, “we had a lot of hesitation in the market. People were becoming nervous,” Apotheker told financial analysts. But, “in the second quarter, the situation has normalized. We are now facing demand that is strictly value-driven. People demand very demanding business cases, and they are checking out the capability of the particular vendor to deliver that value,” he said.
That shift, Kagermann told analysts, has enabled SAP to take market share, particularly from smaller enterprise software vendors.
In the second quarter, SAP saw an acceleration in customer upgrades to its latest release, ERP 6.0. The number of customers licensing ERP 6.0 — 11,500 — has more than doubled since this time last year, Kagermann said. Adoption of SAP’s NetWeaver middleware platform also has increased. At the close of the second quarter, 42,800 customers had adopted the platform, an increase of 67% over the same period last year, he said.
SAP also saw strong growth in its products aimed at small and medium-sized companies. Although SAP recently said it is slowing the pace at which it rolls out its Business ByDesign on-demand product for small and medium-sized companies, the company in the second quarter increased the number of customers using its All-in-One product by 18%, to 12,100. The number of Business One customers in the quarter grew by 32% to more than 20,000.