SAP Posts Pleasant Q1 Surprise

SAP is, as CEO Henning Kagermann said, off to a good start with its 2007 Q1 earnings — especially after its less-than-stellar final quarter in 2006.

The company reported a 10 percent jump in profit based on increased sales of its software and support services. Net income for the first quarter reached US$413 million, up 10 percent from the same quarter last year.

Strong demand in the Americas and Asia is fueling growth, while Europe is a mixed picture, Kagermann said in a conference call.

SAP forecasts that in 2007 it will realize 12 percent to 14 percent revenue growth from software and related services. In 2008, the company plans to introduce a new suite of on-demand applications called “A1S,” designed for mid-market companies seeking to deploy enterprise resource planning applications.

Falling Short

Still, SAP’s earnings report fell short of analyst expectations, Frederic Ruffy, an analyst with the investor education firm Optionetics, told the E-Commerce Times. The company booked revenue $2.17 billion, shy of the analyst projections of $2.23 billion, he noted.

SAP was trading higher on Friday despite the somewhat disappointing earnings report.

“Shares are up $1.24 to $50.42, even after the company posted earnings of 26 cents a share,” Ruffy noted.

IBM Takeover Talk

There were a few reasons for the stock’s strength in the face of the slightly weaker-than-expected revenue results, Ruffy said.

For starters, some of the revenue shortfall was due to currency exposure and the recent decline in the dollar.

“In the Americas, SAP actually had a strong quarter, showing a 15 percent growth,” he pointed out.

Following SAP’s disapointing fourth quarter, which sent the stock reeling on January 24, some investors might have been expecting worse.

“As a result, when the stock moved higher on the news, short covering added a bit of fuel to the rally,” Ruffy commented.

The fact that the company reaffirmed its guidance that 2007 year-over-year software and software services revenue growth would come in around 12 percent to 14 percent were also encouraging.

“Finally, SAP has been the subject of takeover talk in the recent past. There have been persistent rumors that IBM is eyeing the company. There has also been talk about a possible equity buyout,” Ruffy said. “Some players might have waited until after the earnings news to take positions based on the speculation.”