Just two days before the start of its annual Sapphire customer and partner conference, SAP today reported a 10% increase in first-quarter software revenue, marking a return to double-digit growth for the software applications market leader following a disappointing fourth quarter last year.
SAP said first-quarter software revenue was €563 million, up 10% (16% in constant currencies) from the €514 million recorded in the first quarter of 2006. Software revenue grew only 7% year over year in the fourth quarter of 2006. Total revenue for the first quarter rose 6% (11% in constant currencies) to €2.2 billion, from €2 billion. Net income increased 10% to €310 million, or $0.26 per share, from €282 million, or $0.23 per share.
"We are pleased with our first-quarter results," said Henning Kagermann, SAP's CEO, in a prepared statement. "On a constant currency basis, we achieved a strong increase in software and software-related service revenues and reported double-digit growth rates in each region."
Ray Wang, an analyst with Forrester Research, reacted positively to SAP's first-quarter performance. "The 16% license growth is quite healthy, especially for the first quarter."
The financial results come less than a month after SAP was hit by a lawsuit, filed by Oracle, alleging the theft of proprietary software products and other material, and the sudden departure of executive board member Shai Agassi over what SAP said was a disagreement about management succession.
The Oracle lawsuit alleges that SAP and its wholly owned subsidiary, TomorrowNow (SAP TN), unlawfully downloaded thousands of proprietary software products and other confidential material from Customer Connections, Oracle's customer support Web site. TN provides support services to users of PeopleSoft, JD Edwards, and Siebel Systems software products, all of which are now owned by Oracle. Oracle is seeking an injunction against SAP, as well as unspecified compensatory and punitive damages.
Except for saying that it would "aggressively defend" itself against the claims, SAP has said little about the lawsuit since it was filed, but today Kagermann made a point of mentioning it in his opening remarks during a call with financial analysts. He said that SAP is a strong believer in intellectual property and that TomorrowNow engaged in legitimate competition. "This lawsuit demonstrates that Oracle is trying to limit customer choice," Kagermann said.
Agassi, a one-time rising star at SAP AG and a prime candidate to succeed Kagermann as CEO, abruptly resigned from the company on March 28. On that same day, SAP said it would appoint Leo Apotheker, president of the company's customer solutions and operations, to the new role of deputy CEO. The changes became effective April 1. SAP said at the time that Agassi's resignation was, at least in part, a consequence of the company's plan to replace Kagermann, whose tenure as CEO will likely end in 2009.
During a question-and-answer session with the analysts, Kagermann was asked whether Agassi's departure has had any effect on SAP's operations. "People are just continuing to work and there is no disruption," he said.
With the start of Sapphire in Atlanta just days away, Kagermann also talked about the company's upcoming new mid-market product line, code-named A1S. He said the product line, which the company discussed in January at the time of its fourth-quarter financial report, will be demonstrated during the conference.
He said that SAP is now seeking customer and partner feedback on the product line and that it would not be subject to "a big bang" introduction. "We're not trying to launch an entirely complete product," Kagermann said. "We need feedback." Instead, the product will be phased in. "It's about volume readiness in 2008," he said.
A1S will join SAP's two other mid-market products lines, Business One and All-in-One. Kagermann said today that a new release will be introduced this year for Business One and that All-in-One will be "augmented" with CRM capabilities and a simplified user interface this year as well.
On the financial front, SAP reiterated its guidance for the full year 2007, saying that it expects software and software-related service revenue to increase 12% to 14% at constant currencies. Apotheker said the business climate remains unchanged, with what he described as a "healthy undercurrent" of technology spending in the market.