SAP’s Next Acquisition?

Many in the industry are asking where would SAP’s innovation come from in the future? With Shai Agassi’s departure, many of the Silicon Valley executives who came with him have left. On the positive side, they have opened up to major acquisitions, and bought Business Objects last year. I am particularly interested in seeing SAP go for a comprehensive collaboration strategy, and would like to explore the idea of Citrix in that context.

Last month, I had covered SAP’s preannouncement of its Q4 and 2007 results and had suggested that it could be a major acquirer this year. On January 30, it formally reported its Q4 and fiscal 2007 results. Q4 total revenues were €3.24 billion, up 10% y-o-y and 34% q-o-q. Net income declined by 6% y-o-y and went up 85% sequentially to €758 million. EPS was €0.63, up 85% sequentially. Software and software related service revenues were €2.47 billion (up 13% y-o-y and 42% sequentially). Software revenues went up 14% y-o-y and 99% sequentially to €1.42 billion.

For fiscal 2007, total revenues increased 5% to €10.25 billion. EPS was €1.60, up 5%. Net income was €1.94 billion, up 3%. Software and software related service revenues as well as software revenues grew 13% to €7.43 billion and €3.41 billion, respectively. Its worldwide share of Core Enterprise Applications vendors was 28.4%, up from 24.4% in 2006.

Region-wise, Asia-Pacific Japan region grew the strongest in 2007 by 15% to €1.27 billion. EMEA grew by 10% to €5.4 billion and Americas grew by 6% to €3.57 billion. In Q4, APJ grew by 19% y-o-y to €0.386 billion, EMEA grew by 10% to €1.8 billion, and Americas grew by 6% to €1.05 billion.

As for share repurchases, SAP bought back 6.9 million shares for €249 million in Q4 and 27.3 million shares for €1 billion. For 2008, it expects to spend €500 million on share repurchases.

In 2008, SAP plans to roll out their OnDemand BusinessByDesign offering in 15 more countries apart from the existing Germany, UK, France, U.S., and China. It expects its non-GAAP software and software related service revenue, excluding €180 million revenue write-down from Business Objects acquisition, to increase in the range of 24% – 27% at constant currencies. Its stock is trading around $49 after hitting a 52-week low of $43 on January 23. Market cap is around $58 billion.

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Earlier in the year, I had suggested that Citrix could be an acquisition target for SAP and Oracle. Now that SAP is not closed to the idea of major acquisitions as we have seen in the case of Business Objects, this suggestion gains more weight. In particular, with Cisco and Microsoft going aggressively after collaboration, Citrix’s GoToMeeting product line could give SAP a very good foot-hold in that space.

So, let us look at Citrix now. Earlier coverage is available here and here.

On January 23, Citrix Systems, Inc. (Nasdaq:CTXS) reported its Q4 and fiscal 2007 financial results. In Q4, revenue was $400 million, up 24% y-o-y and 14% q-o-q led by strong growth in its PS Platinum and NetScaler products. Net income was $63 million, or $0.33 per diluted share, up 19% y-o-y and 3% q-o-q. It repurchased 5.4 million shares at about $39.46 or for approximately $213 million.

For fiscal 2007, revenues grew 23% to $1.39 billion. Annual net income grew 17% to $214 million, or $1.14 per diluted share.

Region-wise, Q4 revenue grew in the America’s region by 23%; the EMEA region by 22%, and the Pacific region by 21%.

Segment-wise, their Application Virtualization Product Group revenue grew by 16% y-o-y and 17% q-o-q to $285 million. Application Networking Business group grew 48% y-o-y and 4% q-o-q to $48 million revenue led by growth in the NetScaler line. Citrix online had revenue of about $59 million, up 37% y-o-y and 7% q-o-q.

For the full year, App. Virtualization grew 15%, Application Networking had revenue of $155 million, up 42% and Citrix Online grew 44% to $214 million due to continued focus on the SMB market.

Apart from announcing its partnership with Dell earlier in the quarter, it also formed a partnership with HP to qualify and sell Citrix XenServer™ Enterprise Edition on industry-standard HP ProLiant and BladeSystem servers.

For Q1 2008, Citrix expects net revenue to be between $367 and $377 million, compared to $308 million in Q1 2007. GAAP diluted EPS is expected to be between $0.15 and $0.17. For fiscal 2008, it expects net revenue to be between $1.615 and $1.645 billion and GAAP diluted EPS between $0.85 and $0.87. Its stock is trading around $36 after hitting a 52-week low of $29.60 on January 23. Market cap is around $7 billion, which SAP can afford.