SAP AG today said acquisition expenses and the cost of rolling out its new Business ByDesign product combined to drive down by 22% its net earnings for the quarter ended March 31.
Also today, SAP Co-CEO Henning Kagermann said the company has decided to scale back its investments in the rollout of the on-demand Business ByDesign ERP product. Because of the slower rollout, SAP said, it will not achieve €1 billion in Business ByDesign revenue by 2010 as previously promised. Instead, the company will take 12 months to 18 months longer to reach that revenue level with the new software.
“We remain entirely committed to this product,” Kagermann told financial analysts on a conference call today. “You should not interpret this modification as anything to the contrary.” But, Kagermann said, based on early experiences rolling out Business ByDesign to selected customers, “we think we can do even better than we have achieved to date and, therefore, we have decided to take an even more controlled approach to the rollout of Business ByDesign.”
In its first fiscal quarter of 2008, SAP reported revenue of €2.5 billion, an increase of 14% from the € 2.2 billion in revenue the company recorded in the 2007 first quarter . Software revenue accounted for €622 million, up 11% year over year. Software and service-related revenue amounted to €1.7 billion, up 15% from the year-earlier period.
SAP’s net income, however, sank 22% to €242 million from €310 million in the first quarter of 2007. The company’s operating income for the quarter, €359 million, was down 18% from the year-earlier period.
SAP blamed expenses related to its acquisition earlier this year of Business Objects and Business ByDesign rollout costs for the lower margins and net income. According to SAP CFO Werner Brandt, deferred software revenue write-downs and acquisition-related charges related to the Business Objects acquisition accounted for €130 million during the quarter. In addition, Brandt noted, Business Objects’ profit margins, historically lower than SAP’s, also brought down SAP’s margins.
SAP invested €40 million in the first quarter on the rollout of Business ByDesign.
Currency fluctuations — specifically the weakening of the U.S. dollar versus the euro — also undermined SAP’s profitability. Excluding currency changes, SAP would have reported a 22% increase in total revenue, the company said.
SAP’s results were also brought down by the slowing economy in the United States. The company’s software revenue from its Americas region, at €217 million, was down 13% from the same period a year ago. Software revenue from other regions, however, was up considerably. Software sales in the Europe/Middle East/Africa region rose by 23% during the period, while software revenue from Asia was up 47%.
SAP Co-CEO Leo Apotheker acknowledged that the U.S. business environment was “a bit tougher than we expected coming into the quarter.” While business activity and order pipelines in the United States remained strong, he said, the average deal size in the Americas was lower.