Last updated: October 26, 2011 9:42 am

SAP considers buy-backs as revenues rise

SAP, the world’s biggest maker of business software by sales, will consider buying back more of its own shares after software revenues grew at the fastest rate in a decade in the third quarter and helped boost cash flow.

SAP pre-announced quarterly results earlier this month due to brisk software sales. It reiterated on Wednesday that its sales pipeline remained “very strong” as in spite of uncertainty about the macroeconomic outlook companies with solid balance sheets are continuing to invest in IT.

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In light of its strong cash flow generation SAP said it would “further evaluate buying back shares in the future”.

However, Jim Hagemann Snabe, SAP’s co-chief executive, played down the significance of the announcement, telling the Financial Times that “we are not going to spend all our cash on buying back stock”.

SAP is investing heavily in fast-growing areas such as mobile and cloud computing in a bid to increase total revenues to €20bn by the midpoint of the decade, compared with €12.5bn last year.

Optimism about its new product line-up has helped the shares gain about 12 per cent this year but the stock has drifted lower since a peak in April.

The company has high hopes for its HANA “in-memory” technology that allows clients to quickly analyse huge quantities of data by pushing information closer to the processors that work on it.

SAP believes it is up to two years ahead of its rivals in the technology although it still represents only a small fraction of SAP’s sales.

Mr Snabe said SAP has “a chance” to beat its €100m sales target for HANA in 2011 after it achieved €61m in revenues in the first nine months of the year. “There is a first-mover advantage in our industry ... [HANA] is going to be big,” he added.

Oracle, SAP’s big rival, once dismissed the potential of in-memory but this month unveiled its own high-speed analytics offering. Oracle also sought to boost its presence in cloud computing this week by agreeing to acquire RightNow, a US company, for $1.5bn.

Mr Snabe said SAP did not “believe in acquiring market share” and could reach its €20bn target without a big acquisition.

SAP’s software revenues – a key metric of future performance as customers that buy software licences tend to enter lucrative, long-term service contracts – rose by 28 per cent to €841m in the three months to September 30, compared with a year ago.

The company’s operating margin widened substantially during the quarter thanks to a €723m reduction in the provision set aside to cover damages arising from a copyright dispute with Oracle. Net income more than doubled from €501m to €1.25bn.

SAP said it was maintaining its full-year sales outlook, however, “due to the uncertain macroeconomic environment”.

The company said the decision did not demonstrate a lack of confidence and pointed instead to the tough comparison effect caused by last year’s strong fourth quarter. The shares rose by 2 per cent to €43.69.

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