Strong third-quarter license revenue has prompted SAP AG to raise its full-year forecast, as the German business application vendor continued to grow its market share in the U.S.
SAP is now targeting between 12 percent and 14 percent growth in license revenue, up from its previous forecast of between 10 percent and 12 percent, the company said Thursday.
Part of that growth is linked to an adjusted currency exchange rate. SAP had previously based its revenue forecasts on a dollar-to-euro exchange rate of $1.30. It has now changed this rate to $1.25.
But the lion's share of that growth is coming from rising sales. Software license revenue in the third quarter increased 20 percent to €590 million (US$711 million as of Sept. 30, the last day in the period reported) from €491 million in the same period last year. Total revenue, including revenue from consulting, maintenance, training and other services, rose 13 percent to €2.01 billion in the third quarter from €1.78 billion.
License revenue is a key indicator of demand for a company's current product portfolio. Typically, rising license revenue means that maintenance and service revenue will also increase moving forward.
Software revenue in the U.S., home of SAP's arch-rival Oracle Corp., soared 34 percent to €199 million from €149 million a year earlier. SAP said it now has 44 percent market share in the U.S., compared with 36 percent at the end of the third quarter last year.
The Walldorf, Germany, software vendor, which makes software to help customers such as Home Depot Inc. and JPMorgan & Chase Co. with a number of business processes including payroll and accounting, is relying heavily on the U.S. for growth.
In Europe, the Middle East and Africa (EMEA), software revenue grew 6 percent to €263 million in the third quarter from €249 million the year before. And in Asia Pacific and Australia, software revenue rose 18 percent to €81 million from €69 million.
"It was a great third quarter," said SAP Chief Operating Officer (CEO) Henning Kagermann in a conference call with analysts.
Net income for the third quarter was up 15 percent to €334 million, or €1.08 per share compared to €0.94 per share the year before.
Kagermann said that the "reason the company is winning" is that it has a clearly defined road map for future software investments. SAP is investing "wisely," he said, by spending on more organic growth and making "fill-in acquisitions."
As for products, the CEO said that in December, SAP will begin shipping Mendocino, a product it is developing jointly with Microsoft Corp. The product links SAP's ERP (enterprise resource planning) software and Microsoft's Office products.
The company also plans to role out its new suite of business intelligence applications, called SAP Analytics, in the course of next year.
On the pricing front, SAP continues to face "significant pressure," said Léo Apotheker, president of global field operations at SAP. "We're seeing some heavy discounting by our competitors. We'll need to live with this. Price pressure may never go away."
SAP's headcount as of Sept. 30 was 35,022 employees, up from 31,582 employees at the end of the third quarter a year ago.