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SAP trousers €1bn quarter in software sales, fumbles profit

Prelims are best ever but net income can't keep up

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Business is so good at software industry bellwether SAP that it felt compelled to pre-announce its financial results for its fiscal Q2. In the past three months, SAP broke €1bn in new software licence sales for the first time and posted its best second quarter ever.

The preliminary figures show SAP on a roll, with its tenth consecutive quarter of double-digit revenue growth (at least when reckoned using non-IFRS accounting methods). Under IFRS accounting rules, which don't exclude certain costs just like GAAP rules don't in the United States, the results nonetheless show SAP's profits are under pressure – perhaps from a number of fronts that the company will discuss when it reports its full financial results for Q2 on 24 July.

In the quarter just ended, SAP booked €1.06bn in new licence sales, up 26 per cent compared to the year-ago period. Adding software and support revenues together for the quarter came to €3.12bn, up 21 per cent. If you do the sums, then software support revenues in Q2 came to €2.06bn, up 18.4 per cent. Other revenues added up to €780m, rising only 8.3 per cent.

However, operating profits only rose by 7 per cent in the quarter to €920m, and operating margins fell by 2.4 points to 23.6 per cent of revenues. Even if you back out €18m in deferred revenue write downs, acquisition charges of €129m, €4m in restructuring expenses, €2m from discontinued activities, and €99m in stock-based compensation (which gives you the non-IFRS figures), an operating profit of €1.17bn is a rise of 15 per cent and not in keeping with the 26 per cent revenue growth.

SAP's top-line numbers in Q2 were, of course, bolstered by the addition of SuccessFactors, which the German software behemoth shelled out $3.4bn to pump up its SaaS apps biz back in December 2011.

Accounting rules in the US and Europe do not require companies to actually combine their historical financials when they merge their companies, which lets the acquirer show "inorganic" growth, in this case allowing SAP to add about $330m a year based on 2011's estimated financials for the company, which had 15 million users of its cloudy human resources apps.

In a statement, co-CEOs Bill McDermott and Jim Hagemann Snabe said that SAP's "record performance speaks for itself" and that the company delivered double-digit growth in all regions. This was put down to strong momentum from the core application software business as well as being boosted by the HANA in-memory database, mobile application extensions, and cloudy stuff.

(One wonders if the two actually chanted the quote in unison in the SAP head office.)

"The results came in at the upper end of our second quarter software revenue guidance in an uncertain macro-economic environment," they added.

For the first six months of the year, SAP has booked €7.25bn in revenues (up 15 per cent) and an operating profit of €1.55bn (up 7 per cent).

Now, all eyes will turn to Oracle, which ends its first quarter of fiscal 2013 in August, and which could pre-announce its results as well if they are considered significant enough to move the company's stock – one way or the other. ®

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