SAP's quarterly profit drops as revenue rises

Software developer SAP AG said yesterday that its fourth-quarter earnings fell 6 percent as the German company invested in a new software product line for small- and medium-size companies.

SAP, the world's largest maker of business-management software, has its headquarters for the Americas and 1,800 employees in Newtown Square.

Net income for the three months ended Dec. 31 fell to 756 million euros ($1.12 billion) from 804 million euros ($1.19 billion) a year earlier. SAP reports financial results in euros.

Revenue was up 10 percent, to 3.24 billion euros ($4.81 billion) from 2.95 billion euros ($4.38 billion) in the quarter a year earlier.

Software and software-related sales in the quarter were up 13 percent, to 2.47 billion euros ($3.67 billion) from 2.19 billion euros ($3.25 billion) in the 2006 fourth quarter.

The lower quarterly profit was due largely to a $184 million investment in development and launch of a software product, Business ByDesign, begun in the fourth quarter and expected to have an expanded rollout in 2008.

Technology analyst Andrew Miedler of Edward Jones said in an interview that SAP's substantial investment in the new products "is certainly weighing on profitability." But, longer term, in 2009 and beyond, margins should return and profitability improve, he said.

The Web-based Business ByDesign offers software to run a business on an Internet platform, which makes installation "much easier and running it over time much easier," Miedler said. "It's quite a change and will certainly be a revolutionary product" for SAP, Miedler said. "Products like this should allow SAP to continue growth well above the market over time."

In an interview, SAP America Inc. president and chief executive officer Bill McDermott said quarterly profit also was affected by the dollar's decline in value against the euro.

"If you look at the U.S. as an example, we lost 12 basis points of growth [0.12 percent] just to the currency," he said. "Obviously, that translates all the way down to the bottom line."

SAP said it did not expect customers to slow their buying in 2008 despite a difficult global economic environment. "In our business, it's proven historically that the greatest predictor of future demand is software sales," McDermott said.

"Last year, software sales were the fastest-growing in seven years. It was the fourth consecutive year of double-digit growth across the world," he said. "And at this stage, we have not seen any disappointing behavior on the part of buying."

SAP said yesterday that it expected revenue from software and related services in 2008 to increase 24 percent to 27 percent, including the recent acquisition of Paris-based software firm Business Objects S.A.

Without the Business Objects acquisition, SAP forecast 12 percent to 14 percent revenue growth, the same level as 2007.

SAP shares closed down 73 cents, or 1.53 percent, at $46.85 on the New York Stock Exchange.