SAP Cuts Spending as Profit Forecast Falls Short

Global enterprise software company SAP says it has fallen short of its profit goal for the first half of 2012 and, as a result, is going to rein in costs to meet its full-year profit goal.

SAP announced that it is falling short of its goal to make a $6.56 billion internal profit in 2012, based on weaker-than-expected first-half profitability, and it is seeking to reduce costs to reach its goal.

Germany-based SAP said its first-half internal profit, also known as operating profit, came in at $2.35 billion and, at that rate, full-year operating profit will come in at only $6.23 billion to $6.48 billion, which was only 95 percent of the company€™s goal. The announcement was made by SAP€™s Chief Financial Officer Werner Brandt in a video address to employees and was reported Aug. 4 by the German news magazine WirtschaftsWoche.

"We have to cut costs considerably in the second half to reach our internal target," Brandt stated, according to the magazine report.

Increased spending has cut into profitability, he explained, citing acquisitions the company has made, new hiring and an increase in travel. While SAP does not need to impose a hiring freeze, Brandt said the company would ask employees to curtail travel and instead use video conferencing technology to meet with people in distant geographies.

SAP€™s growth strategy of late has been to invest in cloud computing, mobile software and in-memory technology. It credited the success of its HANA in-memory platform for a second-quarter 7 percent profit increase to $1.12 billion on an 18 percent jump in revenue to $4.8 billion compared with the year-earlier quarter.

SAP noted in a statement July 12 that its HANA database business €œhad an outstanding quarter,€ with significant deals in all regions. The HANA platform of SAP software running on partner hardware is designed to do data analytics faster because data is stored in server memory rather than retrieved from disk storage, which takes longer.

SAP also noted sales growth due to synergies with SuccessFactors, which it acquired in late 2011 for $3.84 billion. However, expenses associated with the acquisition of SuccessFactors€”which produces cloud-based enterprise business applications (including HR, finance, payroll and supply-chain management)€”reduced SAP€™s operating margin in the quarter by 2.4 percentage points to 23.6 percent from the year-ago quarter.

SAP upgraded its business intelligence software suite in July by improving support for mobile platforms, and adding enterprise social media features and functionality that better address the need in enterprises for big data analytics.