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SAP reports strong third quarter, revises 2012 outlook

SAP saw strong demand for its newer technologies including HANA, mobile, and cloud

SAP on Wednesday reported double-digit revenue growth in the third quarter, benefiting from a strong performance in the Americas and growth in the Asia-Pacific and Japan region, and high demand for its new technologies like HANA across all regions.

The company has also revised upwards its revenue guidance for 2012 which includes its October acquisition of Ariba, and expects to reach the upper end of the guidance if the macroeconomic environment doesn't deteriorate.

In the quarter ended Sept. 30, revenue was ¬3.9 billion (US$5 billion at the exchange rate on the last day of the quarter), up 16 percent from the same quarter a year ago, according to international financial reporting standards (IFRS). Software revenue grew 17 percent to ¬1 billion, while software and software-related service revenue was up 19 percent to ¬3.2 billion.

Profit was however down 51 percent to ¬618 million from the same quarter a year earlier, when the company's reduction of the provision for its TomorrowNow litigation with Oracle boosted profits. Profit was also impacted by a ¬64 million expense related to the currency hedging of the purchase price for the Ariba acquisition.

The business software company's revenue from its in-memory platform HANA was ¬83 million, putting it on track to meet full-year expectations of at least ¬320 million from the technology, the company said. Mobile revenue was ¬48 million which the company said was also on track to meet full-year forecast of ¬220 million.

SAP's cloud momentum also continued in the third quarter with 12-month new and upsell subscription billings increasing 14 times, the company said. Even after including the company's February acquisition of cloud software company SuccessFactors in SAP's 2011 numbers the growth is triple digit at 116 percent, it added. For SuccessFactors on a stand-alone basis, 12-month new and upsell subscription billings grew 92 percent.

Including its October acquisition of Ariba, SAP expects full-year 2012 non-IFRS software and software-related service revenue to increase in a range of 10.5 to 12.5 percent at constant currencies. This includes a combined contribution of about 2.5 percentage points from SuccessFactors and Ariba. The previous outlook provided in July was 10 to 12 percent, and did not include Ariba.

SAP continues to expect full-year 2012 non-IFRS operating profit to be in a range of ¬5.05 billion to ¬5.25 billion at constant currencies in comparison to ¬4.71 billion in 2011.

Staff at the company has increased by 12 percent to 61,344 from 54,589 in the same quarter last year.

The period "was our best ever third quarter," co-CEO Bill McDermott said during a conference call Wednesday. SAP is "growing twice as fast as [its] closest competitor," he claimed, in an apparent reference to Oracle.

While growth in Europe, the Middle East and Africa was fairly flat, SAP's results nonetheless "[stand] in contrast to the lackluster European results you've seen from some of our competitors," McDermott added.

Business in China grew by more than 40 percent, and that market has become the company's sixth-largest, according to McDermott.

SAP signed many large deals in the quarter for its core ERP (enterprise resource planning) software, a sign that customers are eager to standardize their operations on SAP technology, McDermott said.

In addition, adoption of SAP's Enterprise Support service now stands at 95 percent, according to CFO Werner Brandt. SAP sparked controversy several years ago when it announced that customers would be moved to its higher-priced support service. It later made a number of concessions, while maintaining that Enterprise Support provides more value to customers.

Overall, the quarter's results show that SAP's cloud, mobility and database strategies are clicking, co-CEO Jim Hagemann Snabe said during the conference call.

"SAP has become a major player in the cloud," he said. "We're competing with the cloud incumbents and winning."

It will also become the industry's first profitable cloud application vendor, according to Snabe.

"Nobody is profitable in the cloud today," he said. That's because new cloud vendors first have to invest heavily in building new applications, and don't have any customers once they're finished, he said. After that, such companies need to build out a sales force and devote large amounts of money to build a sizable customer base that it can serve profitably, Snabe said.

"This is where SAP is different," he said. "We already have the customers." To that end, most of the growth in SuccessFactors revenue is coming from the SAP installed base, according to Snabe. "We believe that will continue."

HANA, which SAP plans to use as a convergence point for all of its technologies, also got plenty of attention during the conference call.

At first, most HANA deals were for proof-of-concept and smaller projects, Snabe said. But now, "we're seeing the first kind of, enterprise decisions for HANA," he added.

"We are in a lot of [HANA] conversations right now which are non-SAP environments," McDermott said. "HANA is clearly the Trojan Horse into these accounts."

SAP's Business One software on HANA, which is aimed at smaller companies, will be a "category killer," particularly when delivered as a cloud service to emerging markets, McDermott said.

He portrayed SAP as well-equipped to do battle in the marketplace, with no "impending events" related to additional large acquisitions. "We feel like we have the assets we need."

John Ribeiro covers outsourcing and general technology breaking news from India for The IDG News Service. Follow John on Twitter at @Johnribeiro. John's e-mail address is john_ribeiro@idg.com


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