SAP sees profitability rise on new web products

Reuters News
Posted: Jan 23, 2013 7:12 AM
SAP sees profitability rise on new web products

By Harro Ten Wolde

FRANKFURT (Reuters) - German business software group SAP said its profit would grow faster than revenues from traditional software and related services, helped by new web software products like cloud-computing and data analysis.

SAP, based in Walldorf, southern Germany, is betting on faster growing, web-based software products that are less vulnerable to the economic downturn as there are no upfront costs for program licenses, hardware or installation.

SAP said on Wednesday it expected operating profit this year to be 5.85-5.95 billion euros at constant currencies, up 12-14 percent from 5.21 billion in 2012, and beating an average analyst forecast for a 6 percent rise in a Reuters poll.

However, revenue growth in software and software-related services as a whole would slow to 11-13 percent this year after a 17 percent jump to 13.2 billion euros ($17.5 billion) last year, SAP said.

Software sales generate high-margin, long-term maintenance contracts and are an important gauge of future profit.

Goldman Sachs analyst Mohammed Moawalla said SAP's outlook implied an improvement of 60-70 basis points in this year's operating margin to 32.3 percent at constant currencies.

"We believe that 2012-13 are peak years of investments and we expect better operating leverage going forward," he said in a client note, rating the shares 'buy'.

SAP shares were up 2.5 percent by 6.00 a.m. ET, partly erasing last week's drop when it announced worse-than-expected quarterly revenue and operating profit and investors feared it was failing to keep up with arch-rival Oracle.

Traders said SAP shares as well as those of software groups Cap Gemini and Software AG, were also helped by strong IBM results, published late on Tuesday.

Shares in UK peer Sage Group bucked the trend after it said conditions in mainland Europe were still challenging.

SAP last year splashed out $7.7 billion to buy internet-based computing companies Ariba and SuccessFactors. These so-called cloud services, which deliver services via the Internet from remote data centers, will approach revenues of 1 billion euros this year.

Profitability will also be boosted by a new product called Hana, which helps firms analyze large amounts of data quickly.

The product will have revenues of 650-700 million euros this year, up from 392 million euros in 2012, and will steal business away from its main competitor Oracle, the company's co-chief executive Bill McDermott told reporters.

SAP said it still saw 2015 revenue above 20 billion euros.

($1=0.7526 euro)

(Reporting by Harro ten Wolde; Editing by Dan Lalor and Helen Massy-Beresford)