As expected, SAP today reported solid double-digit fourth-quarter software and service revenue although, the company said, net income dropped, in part, due to significant investments in SAP's new Business ByDesign on-demand offering for small customers.
For the three-month period ended Dec. 31, 2007, SAP saw a 10% increase in total revenue to €3.24 billion, up from €2.95 million reported in the fourth quarter of 2006. SAP's software revenue for the period, at €1.42 billion, was up 14%, while revenue from software and services contributed €2.47 billion, an increase of 13% over the like period a year ago.
For the quarter, SAP saw revenue from subscriptions and software-related services increase 47% to €53 million.
But SAP's fourth-quarter profits did not keep up with revenue growth. The company reported €756 million in net income for the quarter, down 6% from the €804 million in net income reported in the like period a year ago. In a conference call with financial analysts, SAP officials blamed much of the profit dip on investments SAP made in Business ByDesign. CFO Werner Brandt estimated that SAP invested €125 million in 2007 to roll out Business ByDesign. The company plans to invest another €175 million to €225 million in 2008 on the product rollout.
Despite the profit dip, CEO Henning Kagermann called 2007 a "good year" for SAP. He noted that, excluding the effects of currency changes, SAP saw an 18% increase in software revenue and a 17% increase in services revenue for the year. These growth figures, Kagermann said, were SAP's best since the boom year of 2000.
For the year 2007, SAP reported 9% growth in total revenue to €10.25 billion. Software revenue for the year grew by 13% to €3.41 billion, while software and software-related service revenue, at €7.43 billion, was up 13%. SAP reported €14 million in income from discontinued operations. That figure, Brandt said, represented SAP's TomorrowNow maintenance business, which SAP has said it intends to sell.
SAP's net income for the year, at €1.92 billion, grew 3%. SAP's operating profit margin for the year dropped from 27.4% in 2006 to 26.7% in 2008, again blamed mostly on investments in Business ByDesign.
Looking forward, Kagermann told analysts that SAP expects continued double-digit revenue growth in 2008 despite current worldwide economic concerns. SAP said that, excluding the impact of the company's Business Objects acquisition, it expects its revenue to grow organically by 12% to 14% in 2008. Adding Business Objects to the mix, SAP said it expects revenue to grow by 24% to 27%. (Those figures exclude certain non-recurring support revenue write-down costs.)
Despite recessionary fears, Kagermann said, "Demand is there, at least at the moment, in all regions. In particular, Asia is bullish ... What we are delivering is fundamental for success for companies to weather the storm."
In fact, Asia accounted for SAP's greatest growth during the quarter. SAP saw a 28% jump in software and software-related service revenue in Asia during the quarter. India is now SAP's fastest growing market, officials said.
The Americas was SAP's slowest-growing region with a 9% increase in software and software-related service revenue for the period. Europe/Middle East/Africa accounted for 13% growth in software and software-related revenue for the period.
SAP officials reported strength in several key product areas. The company's products for the small and medium-size enterprise, All-in-One, Business One, and Business ByDesign, added a total of 7,400 new customers in 2008, said Deputy CEO Leo Apotheker. To date, SAP officials said, Business ByDesign has attracted 150 customer engagements, which SAP describes as live deployments, trials, or in-process implementations. The company has said it expects 1,000 Business ByDesign engagements by the end of 2008, and $1 billion in Business ByDesign revenue through 2010.
As originally reported, this story stated that SAP has 350 customer engagements for its Business ByDesign product. As of SAP's conference call on January 30, 2008, the company had 150 customer engagements of ByDesign. MA regrets the error.