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SAP Defies Industry Trend

04/19/2013 | 02:15am US/Eastern
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SAP AG (>> SAP AG), the world's third-largest software maker by sales, continued to outperform its business-software peers Friday as flourishing sales of database and web-based applications pulled profits higher.

The company, based in Walldorf, Germany, outshone main rival Oracle Corp. (>> Oracle Corporation), posting a 17% rise in net profit to EUR520 million ($678.7 million) and a 7% increase in revenue. Oracle's net profit, in contrast, was flat in the December-to-February quarter as revenue declined slightly.

Accenture (>> Accenture Plc), which helps companies to implement software from SAP, Oracle and the like, also gave a disappointing outlook.

"We gained significant market share, in particular from our primary competitor, but also, I'd say, from most of our competitors," said Jim Hagemann Snabe, SAP Co-Chief Executive.

SAP makes software products that help companies to do their accounting and manage relationships with customers. The group, whose clients include many of the world's largest corporations like Procter & Gamble (>> The Procter & Gamble Company), Intel (>> Intel Corporation) and Lenovo (>> Lenovo Group Limited (ADR)), has branched out into fields such as cloud and mobile applications in recent years, and has great hopes for its new database software, called HANA, which allows customers to analyze vast amounts of data in a short time.

Revenue from cloud-based software and of related support more than quadrupled compared with a year earlier, outpacing Salesforce.com (>> salesforce.com, inc.), the leader in the field. Salesforce's last earnings report showed a 32% revenue increase in the November-to-January period. SAP's EUR137 million in cloud revenue, however, trails Salesforce.com's $835 million.

Revenue from HANA database software revenue also tripled year-on-year to EUR86 million.

Analysts, however, said that software revenues, which rose only 3%, and earnings before interest and tax were below their expectations.

Co-CEO Bill McDermott said a weakening business in Asia was the main reason for the slowdown. Vacancies at top management positions in the region were temporarily unfilled, which prompted some customers to defer purchases, according to Mr. McDermott.

However, business in the region will likely catch up in the second quarter as the positions have now been filled, he said.

Software revenue will continue to rise medium and long-term despite the recent slowdown, predicted Mr. McDermott.

In most cases, web-based applications won't replace on-premise software because software can handle more complex tasks, he said. Customers will use both on-premise and cloud applications, he said.

The company confirmed its full-year guidance and said it fully expects to meet its 2015 goals.

SAP is forecasting an increase in software and cloud subscription revenue of 14% to 20% and operating profit between EUR5.85 billion and EUR5.95 billion in 2013. The numbers are adjusted for currency swings and not consistent with international financial reporting standards. By 2015, it expects to reach revenue of more than EUR20 billion.

Write to Friedrich Geiger at friedrich.geiger@wsj.com

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