SAP reports one of its best years ever

Program to lure former PeopleSoft, J.D. Edwards customers away from Oracle resulted in around 200 businesses switching to SAP

SAP, the world's largest supplier of business application software, is letting the numbers speak for themselves: eight consecutive quarters of double-digit growth, record-breaking fourth quarter sales, higher profits, and more employees. The figures the company presented Wednesday at a news conference in Frankfurt are among the company's best ever.

Net income for the quarter was €619 million ($733 as of Dec. 31, the last day in the period being reported), up 14 percent from the fourth quarter of 2004. Full-year net income in 2005 was €1.50 billion, or €4.83 per share, compared with €1.31 billion, or €4.22 per share, the year before.

Business is so good, in fact, that SAP is now predicting 2006 sales to increase between 15 percent and 17 percent.

At the beginning of 2005, the Walldorf, Germany, software vendor had forecasted sales growth of between 10 percent and 12 percent but later upped that figure to between 12 percent and 14 percent.

"This is a realistic growth forecast," said SAP Chief Executive Officer Henning Kagermann at the Webcast news conference. "We don't poker with these figures. If we expect them to rise, we say so, and if we don't see them rising, we also say so."

Why so much optimism? Enterprise customers are starting to bite into SAP's NetWeaver integration platform and the company's Enterprise Services Architecture offerings, while small and medium-size businesses are being won over with products they can more easily run and afford, according to Kagermann.

New products are also on the way, including a customer relationship management on-demand offering expected in the first quarter, he said.

SAP has built up a foundation of products from which the company expects to expand from the $30 billion addressable market today to a $70 billion market projected by the end of the decade, Kagermann said.

Software revenue in the fourth quarter increased 18 percent to €1.18 billion, from €1.00 billion in the same period a year earlier. Full-year software revenue also rose 18 percent to €2.78 billion, from €2.36 billion the year before.

An important part of software sales for future business because is the follow-on revenue from software maintenance and consulting that SAP is able to generate.

The Americas, in particular the U.S., and Asia are driving sales growth, according to Léo Apotheker, SAP board member and president of customer solutions and operations. "Our full-year revenue in the Americas exceeded €1 billion for the first time," he said.

Fourth-quarter software license revenue in the Americas increased 34 percent to €425 million from €318 million in the same period a year earlier. Full-year software revenue rose 32 percent to €1.03 billion from €780 million a year earlier.

The U.S. accounted for the lion's share of that growth, with software revenue soaring 31 percent to €820 million in 2005, compared with €625 million the year before.

The Safe Passage program, launched to lure former PeopleSoft and J.D. Edwards customers away from Oracle, resulted in around 200 businesses switching to SAP, according to Apotheker.

Asked if a similar initiative launched by Oracle has stolen any SAP customers, the executive said: "not one, zero."

In Asia, software license revenue in the fourth quarter was up 25 percent to €132 million from €105 million in the same period a year earlier. Full-year software revenue increased 25 percent to €363 million from €289 million.

"We had a strong year in the Asia-Pacific region, particularly in China and Asia, " Apotheker said. "We have introduced marketing strategies in these regions to tap growth opportunities."

Sales in Japan are also recovering, he said, pointing to a 6 percent increase to €122 million in the fourth quarter

Although the percentage of sales growth SAP achieved in the EMEA (Europe, Middle East, Africa) region is below that of the Americas and Asia, Kagermann said the company was satisfied with the performance. SAP can hardly be expected to continuously post double-digit growth rates in markets, such as Germany, where the company already controls most of the market, he said.

Fourth-quarter license revenue in the EMEA region grew 8 percent to €626 million from €580 million. For the full year, revenue also grew 8 percent to €1.39 billion from €1.29 billion.

SAP employed 35,873 people at the end of the 2005, up 11 percent over the previous year.

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