SAP revenue rises 11 percent in first quarter, but margin shrinks

SAP has published preliminary figures for its first-quarter results, showing revenue up 11 percent year on year, but margins shrinking with operating profit up only 6 percent.

Software and software-related service revenue amounted to €2.62 billion (US$3.49 billion as of March 31, the last day of the period reported), up 13 percent year on year, while software revenue grew 4 percent, to €640 million, according to International Financial Reporting Standards (IFRS), SAP said.

Total revenue came to €3.35 billion, with an operating profit of €630 million, up 6 percent. SAP’s operating margin slipped to 18.8 percent for the quarter, down from 19.7 percent a year earlier.

Excluding the effects of certain acquisitions and of currency fluctuations, total revenue for the first quarter rose 8 percent year on year, SAP said, while software revenue rose 1 percent under the same conditions.

Looking ahead, SAP expects software revenue in the second quarter — again excluding certain acquisitions and currency fluctuations — to grow by 15 to 20 percent compared to a year earlier, and for software and software-related service revenue for the second quarter to grow by 14 to 16 percent. A strong “pipeline,” or backlog of pending deals, is contributing to SAP’s optimism, according to a statement.

“Some of the deals that didn’t happen in the first quarter have already happened,” co-president Bill McDermott said during a conference call Friday.

For the whole of 2012, SAP expects software and software-related service revenue to increase by 10 to 12 percent at constant currency rates, including a contribution of up to 2 percentage points from the recently acquired SuccessFactors business. It also forecast operating profit of between €5.05 billion and €5.25 billion, up from €4.71 billion for 2011.

The company has been on a recruiting spree to keep pace with its growth forecasts: excluding acquisitions, the company added the equivalent of 1,700 full-time staff over the year to March 31, ending the first quarter with 59,400 employees.

SAP’s revenue grew fastest in Asia-Pacific and Japan in the first quarter, with software revenue there up 19 percent and software and software-related service revenue up 22 percent.

“The execution issues that impacted our results in the first quarter were local,” and have “nothing to do with demand for business software in general,” co-president Jim Hagemann Snabe said during the call.

Software revenue fell in the Americas, dropping 4 percent to €236 million.

SAP blamed “sales execution issues in North America” for that weakened performance.

“Rest assured, these issues have been swiftly resolved,” McDermott said on the conference call. SAP made “some leadership adjustments that were the right ones at the right time,” he added, in an apparent reference to the recent departure of North America president Robert Courteau .

SAP is also changing the way sales teams in that region operate, McDermott said. Different industries had been combined with different geographical regions, such as the East with financial services and the West with retail companies, according to McDermott. “We have no interest in that coverage model,” he said.

SAP’s sales teams have been placed on high alert and are living in a Darwinian culture, judging from the tone of other remarks McDermott made during the conference call.

“Everyone carries a quota. We don’t have caddies. We don’t have people that are carrying other people’s bags,” he said.

The company intends to publish further details of its results on April 25.

Executives didn’t discuss specific revenue numbers for SAP’s much-hyped HANA in-memory database product. But they will “be more explicit” on April 25, Snabe said. There is “very, very high interest in all regions” for HANA, he added.

In addition, SAP has enjoyed “very fast leverage” of the combined sales force following the close of the SuccessFactors acquisition, Snabe said.

Users of SAP’s on-premise software have “a huge interest” in combining those products with SuccessFactors’ array of cloud applications, he said. “We have a very solid and high-growth situation,” he added.