SAP Earnings Show 15 Percent Growth

SAP (NYSE: SAP) has announced that its second quarter earnings rose by 15 percent in software revenue, as well as by 15 percent in operating income and 14 percent in net income.

The numbers are close to what the company had anticipated when it estimated its performance in early July. It released predictions at that time in order to allay analyst fears brought on by reported slowdowns at PeopleSoft, Siebel and other SAP competitors.

SAP Vice President of Global CRM Initiatives Darc Dencker-Rasmussen told CRM Buyer that it is especially exciting for him to see how much CRM has contributed to the company's overall growth.

"CRM is growing faster than our other segments," he noted. "We see this as a continuing trend as well."

Onwards and Upwards

In its announcement, SAP reported increases across the board. Software revenue was US$596 million, compared to $530 million in the same period a year ago. In constant currency, U.S. revenue increased 70 percent.

Other good news for the company, according to SAP, was an administrative cost decline of 6 percent, to $114 million. The company's six-month operating margin was 22 percent in 2004, a gain of 2 percentage points over last year's second quarter.

The company noted that it has continued to gain worldwide share against its competitors. SAP considers its competitors, which it calls its "peer group," to be Microsoft's (Nasdaq: MSFT) Business Solutions segment, Oracle's (Nasdaq: ORCL) business applications group, PeopleSoft and Siebel.

In a statement regarding the results, Henning Kagermann, CEO of SAP, said, "We continue to experience a sound economic environment in the U.S. while our European business is showing signs of stabilization in a more subdued economy."

Success Through Upgrades

According to Dencker-Rasmussen, a major component of SAP's robust second quarter was the release of mySAP CRM 4.0 last June.

"That release was the result of a huge investment in time and resources," he said. "It required the largest effort and focus that the company has ever put into a single release in its history."

The result, he said, was a welcome reception from analysts and customers after it hit the market. Once it was available, some customers that had been holding off on upgrades made the leap and raised SAP's revenues considerably. Dencker-Rasmussen said, "We began many implementations after the release."

Beagle Research founder Denis Pombriant noted that SAP also did many things right in terms of getting the word out about 4.0. "They're doing a great job of migrating customers to the new platform," he said. "They've also drawn new customers in through this product. It remains to be seen whether it will catch on completely, but they're going to do well with it."

More Efforts Ahead

In order to keep growth at a steady clip, SAP is now planning to assist customers in capitalizing on all of 4.0's capabilities, and expanding the product's recognition in specific industries.

Dencker-Rasmussen said that an additional productivity pack was released earlier in the year, and there is another scheduled for later this year to increase extensions to the product. "We're not letting up," he said. "Many of the capabilities aren't being utilized, and we're making that a priority for this year, to get the word out about how much the product can do."

Part of that effort involves assisting customers in customizing the application to suit their specific industries. Media customers may want to draw on 4.0's intellectual property capability, for example, Dencker-Rasmussen said.

In some cases, the effort will involve modifying how 4.0 is delivered. Dencker-Rasmussen cited a pharmaceutical company that purchased 3,000 mobile devices that will use mySAP to get information to employees using them away from the office.

Dencker-Rasmussen said SAP also feels confident about the continuing popularity of CRM and the prospects for its future. He noted that many existing customers, such as Adobe (Nasdaq: ADBE) Systems and Clorox, have begun to buy substantial numbers of new licenses to augment the licenses they already have.

"We think there are users across the enterprise that would benefit from CRM but aren't doing so yet," he said. "So, we think the potential for growth is substantial."