April 19, 2013 8:33 am

SAP falls short amid ‘execution issues’

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software maker SAP shows one of the company's server rooms in Walldorf, Germany©AP

SAP blamed a “perfect storm” in the Asia-Pacific region for a shortfall in quarterly business software sales and operating profit, as it joined a host of other software companies reporting weakness in the first quarter.

Sales of new software licences, an indicator of future revenues, rose 3 per cent to €657m, missing a €726m estimate compiled from analysts by Bloomberg. 

First-quarter operating profit rose 8 per cent to €901m, also short of analysts’ forecasts. Net profit climbed 18 per cent to €689m. The figures are not according to international financial reporting standards.

However, SAP continued to enjoy stellar growth in its new cloud, mobile and database products. Revenue from cloud subscriptions and support reached €167m, almost four times the previous year’s figure. Revenues from the Hana database software, SAP’s big data product, tripled year-on-year to €86m.

But the company’s software and cloud subscription revenue declined 10 per cent in the Asia-Pacific region, including Japan.

Bill McDermott, co-chief executive, told the Financial Times on Friday that the company had suffered from several management changes in the region and an uncertain political climate in China.

“It was a perfect storm situation – we had a leadership change in China, India and southeast Asia all in the same quarter. China right now is a bellwether, and when China is guiding GDP down or changing governments it does create uncertainty and you’ve see this not only in SAP but in other companies.”

Despite the weakness in Asia, SAP held its full-year guidance of 12-14 per cent growth in operating profit and total cloud revenue of €1bn.

“We are confident that we will be back on track in the second quarter. We see a healthy pipeline across all key markets in this region, in fact, very healthy,” Mr McDermott said.

SAP shares fell 4.3 per cent in afternoon trade to €57.3, having peaked at €64.9 last month.

The results reflect signs of a tough market for software as governments cut back on spending. Citi Research noted in a recent report that most recent software results had “shown a bias towards tougher conditions”.

SAP rival Oracle last month reported quarterly revenues and earnings below Wall Street expectations. On Thursday IBM’s revenues and profits also missed analysts’ forecasts, which it blamed, like SAP, on a “shortfall in sales execution”.

Under IFRS rules, SAP’s operating profit rose 2 per cent to €646m. Net profit was up 17 per cent at €520m.

Friday marked the first time SAP had broken out sales figures for the cloud business, which have in the past been diluted by the scale of its traditional software and support business when compared with smaller competitors.

“We said that we would focus on the cloud, mobile and big data. We can grow as fast as them and gain share against them, so why not break it out and show SAP can dance – and that’s what we’re doing, we’re dancing,” Mr McDermott said.

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