SAP Q4 profits down due to TomorrowNow litigation

Revenue rose, but profits dropped by more than a third

SAP saw revenue rise 27 percent in the fourth quarter but profits dropped by more than a third due to increased provisions linked to litigation with Oracle related to its former TomorrowNow unit, the company said Wednesday.

Oracle sued and won $1.3 billion in damages in a corporate theft lawsuit against TomorrowNow which downloaded software and support materials illegally from an Oracle website.

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On Wednesday, SAP said it intends to fight the damages and laid out a course of action.

"SAP has great respect for the US legal system and Court decisions. However, SAP believes that the amount awarded by the jury in Oracle v. SAP/TomorrowNow is disproportionate and wrong," the company said.

"After the Court has entered final judgment SAP intends to file post-trial motions in the coming weeks asking the Court to reduce the amount of damages awarded, or to order a new trial," it said.

It warned the amount by which the jury award would be reduced, if any, cannot be predicted, so legal provisions assumed in Wednesday's earnings statement could change.

Revenue in quarter ended Dec. 31 was €4 billion ($5.3 billion at the exchange rate on the last day of the quarter), while net profit was €437 million. The results are calculated to international financial reporting standards and include the operations of Sybase after it was acquired by SAP on July 26 last year.

SAP expressed confidence for the coming year and said it performed extremely well in all key customer segments, and showed solid revenue worldwide, particularly in fast-growing emerging markets.

Software revenue in the fourth quarter was €1.51 billion, an increase of 35 percent over the same quarter in the previous year. Software and software-related service revenue was €3.27 billion, an increase of 28 percent.

Software revenue grew for the full year to €3.27 billion up by 25 percent, while software and software-related service revenue was €9.8 billion, an increase of 19 percent over the previous year. Full year revenue at €12.5 billion was up by 17 percent over the previous year, while net profit was €1.8 billion, up 4 percent.

"First and foremost, SAP is a growth company, and we are stronger than ever," said co-CEO Bill McDermott during a conference call.

SAP's core business "is back," he said. "I don't think this is just pent-up demand from what didn't happen in 2008."

The company signed 36 deals in the fourth quarter each worth more than €5 million, according to McDermott. "The trend is back where people are investing."

As customers begin spending more on ERPsoftware, SAP is better prepared than in the past to help them avert project failures, McDermott said in an interview. "Customer success is linked top to bottom to the way people [at SAP] get paid," he said.

SAP's on-demand ERP suite Business ByDesign, which recently entered a wider release, is outpacing the company's expectations with 250 customers signed up already, co-CEO Jim Hagemann Snabe said. Executives are "confident" that number will top 1,000 this year, he added.

Business ByDesign's growth rate is outpacing the most successful product in SAP's history, the R/3 ERP platform, by a "significantly higher rate," according to Snabe. Germany is so far the strongest market for ByDesign, according to SAP.

Most of the initial customers are small to medium-size businesses, but there is no reason ByDesign could not serve a large enterprise, Snabe said. Most of the latter want a hybrid ERP model, Snabe said. SAP is trying to cater to that need with a series of on-demand extensions that will be built with ByDesign's underlying platform.

However, the "biggest immediate revenue opportunity" for SAP lies in its recently announced HANA in-memory analytic appliances, Snabe said. SAP is positioning the appliances as something SAP customers can use to analyze transactional data from their ERP systems, and is building a series of specialized applications that will run on top of HANA boxes.

HANA presents "extreme" value for customers, due to dramatically lower infrastructure costs compared to disk-based systems along with its high performance, Snabe said.

The systems will have to compete with products such as Oracle's Exadata machines, which have been in the market longer. Oracle also has a built-in foothold to SAP's customer base, since its core database is running underneath many SAP ERP implementations.

SAP expects that some customers will run both platforms, much like they have run both the company's NetWeaver middleware stack and IBM's WebSphere, McDermott said. "It's not a one or the other situation."

McDermott painted a similar picture of co-existence between SAP and Hewlett-Packard, which is now led by former SAP CEO Leo Apotheker. The executive is on record saying he wants to strengthen HP's hand in software, and is scheduled to deliver a presentation on his plans in March.

HP can't go it alone, McDermott said. "Every major high-tech company realizes they need the SAP platform to enable their hardware and services ambitions," he said.

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