Article

Kagermann: Q4 slip won't slow SAP

Robert Westervelt, News Director

Despite a disappointing 3% decline in its Q4 revenue and an overall 6% loss for the year, SAP executives said today that the company exceeded its initial full-year earnings forecast and expects strong growth in 2004.

The expected earnings decline prompted shares in the German software giant to fall at the start of this week, closing Wednesday at $41.98.

In recent days, SAP has attributed the license revenue shortfall to the rising strength of the euro against the dollar, saying that that Q4 results were more a reflection of the rate of exchange than they were a measure of SAP's success.

On an earnings call today, SAP CEO Henning Kagermann reiterated that theme, and said SAP expects its software revenue to grow by about 10% in 2004.

"We believe 2004 will demonstrate the continuation of a trend we saw evolve in the second half of 2003 -- clear signs that companies started picking up the pace of their software investments," Kagermann said.

SAP's global market share now stands at 59% -- one point higher than in the previous quarter. The company also reported it had gained U.S. market share, but no numbers were offered.

Industry analysts agreed that the market was more disappointed in SAP than it might have been if competitor Siebel Systems Inc., San Mateo, Calif., hadn't recently posted results that soundly beat expectations.

By SAP's estimate, software license revenue in 2003 would have increased by 4% if currency

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rates had not soared. Total license revenue in 2003 was 2.15 billion euros, or $3.5 billion.

SAP's earnings numbers reflect what has been a very slow market for application software for the past three years, said Jim Shepherd, a senior vice president with Boston-based AMR Research. Although the market is rebounding, it's been a slow recovery, he said.

"When you're the size that SAP is, you're not going to be in a situation where you will be growing significantly faster then the economy is," Shepherd said. "They're in fine shape. They're not losing their market position and not losing their market share. I think that people still have a set of rather unrealistic expectations for the application software industry based on the late 1990s."

Kagermann said that SAP is increasing its clout among small and medium-sized businesses, and he pointed to the company's mySAP All-in-One automation software package as evidence that it is successfully building products designed for that sector. Near-term growth is expected to be driven by upgrades on the mySAP enterprise resource planning software, he said.

"We've improved efficiency but continue to invest in the future, and that's key," Kagermann said. "We added 9 percentage points for research and development, so, therefore, I think it's also an indication of how strongly we feel about our products."


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To provide feedback on this article, contact Robert Westervelt.


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