SAP’s Mobility Strategy Scores

SAP (NYSE:SAP), the largest maker of business management software, last week reported a strong second quarter and said it will reach the high end of its forecasts. SAP’s $5.8 billion acquisition of database specialist Sybase last year has helped the company to realize its vision of in-memory computing and broadened its reach in mobile platforms. Let’s take a closer look.

SAP’s Financials
SAP last week reported second quarter revenue of €3.3 billion ($4.7 billion), up 14%. Software and software-related service revenue increased 14% to €2.58 billion ($3.68 billion). Software revenue grew 26% to €802 million ($1.14 billion). Net income increased 20% to €588 million ($837 million) or €0.49 per share from €491 million ($699 million) or €0.41 per share last year. Non-IFRS operating profit increased 19% to €1.02 Billion ($1.45 billion).

Software and related services sales in the Americas grew 10%. Asia-Pacific was up 17%, while Europe, the Middle East, and Africa gained 16%. SAP ended the quarter with liquidity of €4.40 billion ($6.26 billion) and net liquidity of €531 million compared to €850 million six months back.

Based on its strong performance in the quarter and improved visibility, SAP reaffirmed its revenue and profit outlook for the year but says it expects to reach the higher end of the range. SAP expects to reach $20 billion in annual revenue by 2015. Its annual revenue in 2010 was €12.9 billion ($17.6 billion).

SAP expects full-year 2011 non-IFRS software and software-related service revenue to increase in a range of 10%–14% from €9.87 billion ($14.05 billion) in 2010. The company expects full-year 2011 non-IFRS operating profit to be at higher end of a range of €4.45 billion–€4.65 billion ($6.5 to $6.75 billion). Its stock is trading around $60 with market cap of about $71 billion. It hit a 52-week high of $68.39 on April 27.

Harro ten Wolde on Reuters reports that SAP has taken market share from Oracle for the first time in more than a year. Rajeev Bahl at Matrix Research says:

“SAP is regaining market share more quickly than we had expected. For the first time in seven quarters, SAP’s organic license growth has outpaced that of Oracle, we estimate.”

Bahl estimates SAP’s organic application growth was 18 percent during the quarter versus 16 percent for Oracle, noting SAP’s new strategy of offering tailor-made services is paying off.

SAP has been betting strongly on cloud computing, business mobility and in-memory computing. The recent results are a sign that its bet is paying off. SAP’s Business ByDesign software targeting smaller companies is also reported to be gaining traction. During the quarter, the company also gained the U.S. National Hockey League team the San Jose Sharks as a user of its on-demand software Business ByDesign.

In-memory computing or High-Speed Analytical Appliance (HANA) allows companies to store data locally in the main memory instead of a server, which speeds up the analysis of business data. SAP said it was targeting €100 million in revenue for mobility and in-memory computing this year. During the quarter, Colgate-Palmolive and Lenovo Group Ltd started using its HANA in-memory technology. SAP emphasizes that at €10 million a week, HANA represents the strongest pipeline for any product in the company’s history. Oracle is also reported to have an imminent in-memory accelerator up its sleeve. To conclude, HANA appears to be a promising innovation from SAP. SAP needs to make sure it delivers on its promise.