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SAP Looking Good

Posted on Friday, Jan 28th 2011

SAP (NYSE:SAP) reported record fourth quarter revenue this week and growth in all segments driven by pent-up corporate demand. However, its profits took a hit due to the $1.3 billion payment to Oracle following the verdict of TomorrowNow lawsuit.

TomorrowNow–Oracle Lawsuit
There was much mudslinging over the course of the trial, with Larry Ellison, CEO of Oracle, accusing Leo Apotheker, CEO of Hewlett-Packard, of overseeing an espionage scheme when Apotheker was SAP’s CEO. TomorrowNow provided maintenance services for customers of Oracle’s PeopleSoft and J.D. Edwards software, and Oracle accused the company of illegally downloading software patches and other materials from its customer support website. SAP acquired TomorrowNow in 2005 but shut it down in 2008 after Oracle filed its lawsuit.

The jury verdict in the TomorrowNow–Oracle lawsuit was delivered on November 23 and required SAP to pay $1.3 billion in damages. Oracle was seeking $2 billion to $4 billion in damages, while SAP said $160 million was reasonable. SAP said it hopes to be able to lower the fine through post-trial motions or a request for a new trial, and if those fail, SAP may appeal the verdict.

SAP’s Financials
In its fourth quarter results, SAP this week reported revenue of €4.058 billion ($5.57 billion), up 27%. More than 25% of the fourth quarter revenue increase was a result of large deals in excess of €5 million ($6.8 million). Software and software-related service revenue grew 28% to €3.273 billion ($5.1 billion) while software revenue grew 35% to €1.507 billion ($2 billion). Net income was down 36% to €437 million ($599.6 million) or €0.37 per share from €682 million or €0.57 per share last year.

SAP ended the fiscal year with €12.9 billion in total revenue ($17.6 billion), up 17% from €10.6 billion in 2009. Net income for the full year was €1.82 billion or €1.53 per share versus €1.75 billion or €1.47 per share last year. The company ended the year with liquidity of €3.53 billion ($4.84 billion).

Mathew Curtin on the Wall Street Journal said that SAP, the world’s largest provider of enterprise software, is poised to ride the emerging-market export boom:

“Emerging-market sales are still a relatively small part of SAP’s business; Asia contributed 14% to fourth-quarter revenue. But they are growing fast. Sales in Asia, excluding Japan, rose 42%, and in the Americas, outside the U.S., by 45%. Among SAP’s new customers were China National Chemical, Korea Exchange Bank, and the University of São Paulo.”

SAP’s $5.8 billion acquisition of Sybase is also helping SAP to achieve double-digit growth. Sybase is the leader in delivering enterprise and mobile software to manage, analyze, and mobilize information, and the acquisition is expected to accelerate SAP’s reach in mobile platforms and the realization of its in-memory computing vision. The acquisition was completed in July and has already contributed €329 million ($451 million) to total revenue.

Jim Hagemann Snabe, co-CEO of SAP, said during the earnings call that

“SAP fundamentally believes in innovation and choice as a sustainable business model for us and our customers. We have a full pipeline of innovations and are expanding into new markets for mobility, on demand and in-memory computing. We are convinced that these new innovations will help us drive double digit growth and reach 1 billion users by 2015.”
“The two innovations set to drive the most growth in 2011 will be analytics and on-device computing. The highlight in analytics is Hana, the in-memory appliance SAP introduced late last year. In mobile computing, an integration of the Sybase Unwired mobile middleware platform with SAP applications will bring new on-device access and process support.”

For 2011, SAP expects non IFRS software and software-related service revenue to increase by 10% to 14% at constant currencies. It expects non-IFRS profit of €4.45 billion to €4.65 billion. Excluding revenue from Sybase, acquired in May, SAP expects revenue to increase 6% to 8%. The stock hit a 52-week high of $57.63 on January 27 and has a market cap of about $68 billion. It hit a 52-week low of $40.95 on May 25. SAP has started to look good since its Sybase acquisition and the change in management. Even the $1.3 billion spent on litigation hasn’t had much of an impact on its stock price. On the contrary, the record revenue has seen the stock surge.

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