SAP reported a rise in net profits and revenues for the first quarter, but fierce competition with rivals and dour analyst predictions shadow its outlook.
SAP reported first-quarter net profits of $597 million, off
total revenues of $4.4 billion, with company executives offering an optimistic
forecast for the rest of the year despite continued pressure from rivals such
as Microsoft and Oracle and numbers that failed to meet forecasts by a survey
of Dow Jones analysts.
SAP's net profit rose 4 percent, while software and
software-related service revenue-which totaled $3.44 billion-rose 20 percent.
Although SAP's traditional strength lies in software offerings for enterprises,
the company has a continuing strategy of targeting SMBs (small- to midsize
businesses).
SAP famously struggled to find its way in the wake of the
global recession, which greatly impacted its clients' bottom lines and
willingness to spend heavily on enterprise IT. The company's revenues dipped
throughout 2009, eventually leading to the ouster of then-CEO Leo Apotheker in
February 2010.
In subsequent quarters, SAP saw its revenue and profits
increase, although it faces continued battles with Oracle for the hearts and IT
dollars of some of the world's largest companies. Near the end of 2010,
SAP
and Oracle also locked horns in a particularly vicious lawsuit, with the
latter claiming that SAP subsidiary TomorrowNow stole its software
documentation and confidential material via unauthorized access to a customer
support Website. SAP has acknowledged that the illegal downloads took place,
while insisting it never saw the data.
SAP's bottom line has also been weighed down by the $5.8
billion acquisition of Sybase in May 2010, a move widely seen as a way to
expand SAP's mobile offerings and stay competitive via new revenue streams. It marked SAP's largest purchase since its $6.7
billion takeover of business intelligence software producer BusinessObjects in
2008.
But SAP's executives are now insisting that SAP is on the
road to robust health, predicting full-year software and software-related
service revenue to grow between 10 and 14 percent.
"SAP's strategy of growth through innovation is clearly
paying off and we remain confident about our future outlook," Jim Hagemann
Snabe, co-CEO of SAP, wrote in an April 28 statement. "Our innovations
addressing new markets with in memory, on demand and mobility are rapidly
gaining traction. We are innovating faster in all product areas and continue to
increase operational efficiency across the company."
But some analysts didn't seem so convinced.
"I believe SAP's disappointing performance is due to its
strong position in Europe and the Middle East, where growth is limited,"
Cheuvreux analyst Bernd Laux told
Reuters
April 28. "Add to this the increasingly saturated business with big
corporate customers and the fact that new products are still small, and it's
clear why SAP is falling behind."
SAP's roadmap for 2011 includes applications that leverage
in-memory technology, including HANA, a high-performance analytical appliance
that can streamline data-crunching.
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