Update: SAP increases Q1 profit on strong U.S. sales

SAP's U.S. sales up 27 percent as company moves to win business from rival Oracle

German business software vendor SAP reported Thursday an 11 percent increase in first-quarter net income on strong sales, particularly in the U.S.

Net income rose to €254 million ($331 million as of March 31, the last day in the period being reported), or €0.82 per share, from €229 million, or €0.74 per share, in the same period a year earlier, the Walldorf, Germany, company said in a statement.

Software revenue in the first quarter was up 17 percent to €434 million from €370 million a year earlier. At constant currency rates, revenue increased 20 percent year-on-year. Constant currency rates exclude the impact of fluctuations in currency exchange rates.

"We are letting the numbers speak for themselves," said SAP Chief Executive Officer Henning Kagermann, in a conference call. "Our order book is growing and our pipeline remains healthy."

Kagermann said SAP was "off to a great start" in 2005 but warned that the price environment "remains tough."

In the U.S., one of SAP's fastest growing regions as the company moves to win business from its closest competitor Oracle, sales increased 27 percent to €131 million from €103 million. At constant currency rates, U.S. revenue was up 35 percent year-on-year.

SAP's Safe Passage maintenance and migration program is aimed at all companies in the U.S. running PeopleSoft and J.D. Edwards (JDE) applications. PeopleSoft, which acquired J.D. Edwards in 2003, was purchased one year later by Oracle for $10.3 billion.

Kagermann declined to say how many customers SAP has been able to sign up through its Safe Passage program.

Revenue in the EMEA (Europe, Middle East and Africa) region grew 6 percent to €926 million from €871 million a year earlier. However, revenue in Germany, SAP's home base, was down 2 percent in the first quarter, as Europe's largest economy continues to battle high unemployment and sluggish consumption.

Léo Apotheker, SAP executive board and president of Global Field Operations, attributed the revenue growth in Europe to a larger volume of smaller deals and "steadily" growing sales to small and medium-size businesses. "We said last year that we expected sales in Europe to improve in 2005, and that's happening," Apotheker said in the conference call. "We're in good shape in Europe, but the economic situation in the region remains tough."

SAP's flagship ERP (enterprise resource planning) software continued to account for the lion's share of software revenue. The product generated revenue of €174 million in the first quarter, up 12 percent from €156 million a year ago.

The next largest revenue generator was the company's SCM (supply chain management) software, which came in at €88 million, up 9 percent from €81 million a year earlier.

Sales to retail customers were strong in the first quarter "even without Retek," Kagermann said. Last month, Oracle outbid SAP to acquire Retek, a Minneapolis retail management software vendor.

SAP expects full-year 2005 revenue to increase between 10 percent and 12 percent, compared to 2004, the company said.

In the first quarter, SAP hired 1,004 people, increasing its headcount to 33,209 as of March 31. The company plans to hire up to 3,000 people, mostly software engineers, according to Kagermann.