SAP Forecasts Steady Growth

GERMAN business software giant SAP forecast steady sales growth and improving profit margins for this year, despite the looming prospect that a global economic downturn could reduce demand for its products.

Chief executive Henning Kagermann said in an interview that recent meetings and conversations with chief executives in Asia, Europe, and the US had left him confident that companies would keep buying SAP’s products in the current volatile economic climate.

“In the US, CEOs are a little more cautious about engaging in larger projects, but that’s not new,” he said. “We saw that in the second half of last year, too.” In contrast, executives in Asia were in a “very positive mood” and expected strong local demand even in the face of an economic downturn elsewhere. “Today I see no indication that there will be a significant slowdown in our business,” he added.

Boosted by the recent acquisition of Paris-based software firm Business Objects, SAP said software and related service revenues this year would increase 24-27 per cent this year. Excluding the acquisition, SAP forecast 12-14 per cent revenue growth, the same level as last year. Both figures were given by the company on a constant currency basis, meaning adjusted for fluctuations in the value of the euro and the dollar.

At the January annual meetings of the sales forces for Asia, Europe and North America, SAP executives worked on expanding the product portfolio its people in the field sell to include not only SAP’s core products but also the new ones from the Business Objects acquisition. “We’ve organised the sales plan for new portfolio, and the sales force is ready to go out to clients and sell,” said Mr Kagermann.

The Walldorf, Germany-based SAP also said it expects an operating margin in the range of 27.5 per cent to 28 per cent this year, compared with 27.3 per cent in 2007.

Net income for the fourth quarter of 2007 fell 6 per cent to 756 million euros ($1.26 billion) compared with 804 million euros a year earlier, largely because of spending on a new product line designed for small businesses. Dubbed Business by Design, the web-based product presents new challenges and growth opportunities for SAP, which has long generated most of its profits from selling software to huge multinationals.

SAP said that it had signed up 150 clients for the new product in 2007. This year it hoped to get up to 1000 customers, and 10,000 by 2010. Last year was all about perfecting the technology for Business by Design; this year is all about perfecting the marketing and business plan, said Mr Kagermann.

As part of that effort, SAP recently opened its first call centre in Barcelona where salespeople take calls from companies interested in buying its new web-based software for small businesses. “The telecentre is up and running and going very well,” said Mr Kagermann. “But this kind of thing is fundamentally different than what we did before so we have to make sure we can do it profitably.”

The Wall Street Journal

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