SAP revenue rises 11% in first quarter, but margin shrinks

IDG News Service - SAP published preliminary figures for its first-quarter results on Friday, showing revenue up 11% year on year, but margins shrinking with operating profit up only 6%.

Software and software-related service revenue amounted to €2.62 billion ($3.49 billion as of March 31, the last day of the period reported), up 13% year on year, while software revenue grew 4%, to €640 million, according to International Financial Reporting Standards (IFRS), SAP said.

Total revenue came to €3.35 billion, with an operating profit of €630 million, up 6%. SAP's operating margin slipped to 18.8% for the quarter, down from 19.7% a year earlier.

Excluding the effects of certain acquisitions and of currency fluctuations, total revenue for the first quarter rose 8% year on year, SAP said, while software revenue rose 1% under the same conditions.

Looking ahead, SAP expects software revenue in the second quarter -- again excluding certain acquisitions and currency fluctuations -- to grow by 15 to 20% compared to a year earlier, and for software and software-related service revenue for the second quarter to grow by 14 to 16%. A strong "pipeline," or backlog of pending deals, is contributing to SAP's optimism, according to a statement.

"Some of the deals that didn't happen in the first quarter have already happened," co-president Bill McDermott said during a conference call Friday.

For the whole of 2012, SAP expects software and software-related service revenue to increase by 10 to 12% at constant currency rates, including a contribution of up to 2 percentage points from the recently acquired SuccessFactors business. It also forecast operating profit of between €5.05 billion and €5.25 billion, up from €4.71 billion for 2011.

The company has been on a recruiting spree to keep pace with its growth forecasts: excluding acquisitions, the company added the equivalent of 1,700 full-time staff over the year to March 31, ending the first quarter with 59,400 employees.

SAP's revenue grew fastest in Asia-Pacific and Japan in the first quarter, with software revenue there up 19% and software and software-related service revenue up 22%.

"The execution issues that impacted our results in the first quarter were local," and have "nothing to do with demand for business software in general," co-president Jim Hagemann Snabe said during the call.

Software revenue fell in the Americas, dropping 4% to €236 million.

SAP blamed "sales execution issues in North America" for that weakened performance.

"Rest assured, these issues have been swiftly resolved," McDermott said on the conference call. SAP made "some leadership adjustments that were the right ones at the right time," he added, in an apparent reference to the recent departure of North America president Robert Courteau .