SAP Holds Up Under Global IT Slowdown

Apr 17, 2003

Mark Berniker

Even though global IT spending has dropped sharply, Germany's SAP said Thursday its financial results for the first quarter were impressive, despite falling short of expectations. The company is also maintaining its previous forecast of continued growth for the rest of 2003, but wouldn't pin a specific figure on its rosy expectations.

SAP's operating profit rose 28 percent to $330 million, as net profits nearly trebled to $203 million, compared with $71 million last year. SAP took heavy financial charges last year, because of sharp drop at its affiliate Commerce One. SAP may be doing better than its peers, but that doesn't mean the European software giant isn't under some sales pressure.

SAP claims its improving market share in the business software market at the expense of some of its rivals. Analysts say SAP's sales performance in the U.S. is getting better, which has come just as its software license revenues in Europe, the Middle East and Africa are weakening.

SAP's somewhat positive financial results also are a departure from its rivals Siebel Systems and Peoplesoft, which have said they don't expect to meet analysts expectations, blaming the continued economic slump in the U.S.

But as SAP announced its results, its stock price has been rising in recent weeks, as its one of the few global software companies with some good news.

"SAP's numbers show great momentum in the Americas (the cavalry finally arriving), a sharp weakness in Europe, weak maintenance revenues and very strong margins," said Deutsche Bank European software analysts Kevin Ashton and Adam Wood.

SAP said it is selling its business planning software to more than 19,000 customers around the world. SAP is saying it will improve its operating margins in 2003 by one percent from 22.7 percent in 2002.

SAP, Europe's largest software company, said it expects its earnings per share to increase by as much as 17 percent. However, SAP's first quarter sales were below estimates, dropping by 8 percent. Software licensing revenues overall slipped by 12 percent, which was more than analysts anticipated.

And in another sign of future uncertainty, SAP declined to give a specific full-year sales forecast for 2003. Analysts say the company has already sharply cut costs, what is unclear is whether there will be a turnaround in business software spending, or if revenue generation will remain under intense pressure.


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