Advising on the commercial impact of technology and
    market changes in telecoms, software and IT services

Author: Cornelia Wels-Maug

Yesterday, SAP released preliminary results for its Q2 2006. Total revenues are expected to be €2.2bn, up 9% at constant currencies compared to Q2 2005. Operating income is expected to grow by 13% to around €558m, with an estimated operating margin of 25.4%, up 80 basis points on Q2 2005. Pro-forma net income is around €432m, up 38%, and pro-forma earnings per share are expected to grow to €1.41, up 38% on the same quarter last year.

US software revenues grew approximately 20% to €201m, while the entire Americas region, including Canada and Latin America, grew by 21% to €239m. EMEA software revenues are estimated to be up 3% at €296m, with software revenues in Germany at €100m, up 8%. Asia-Pacific software revenues were up 4% (all figures are constant currency comparisons).

CEO Henning Kagermann confirmed the guidance for 2006, which anticipates product revenue growth of 15-17%, pointing to a strong order book and a robust pipeline.

Comment: SAP's share price tumbled yesterday after it released its preliminary results, and finished trading at €149.8, down 6%. This was due to lower than expected growth in software licence revenues, which were “only” up 10% (or 8% disregarding changes in currency) to €621m, below analysts' expectations of around €675m.

For the first time, Kagermann had to admit market share losses to arch-rivals Oracle and Microsoft. In yesterday's telephone conference, he stated that internal research pointed to a 1-2% loss in market share, but that it isn't possible to determine the exact gain in market share to either competitor.

Overall, the geographic growth in software revenues is not surprising, with the US being SAP's single-strongest market. Home market Germany lived up to expectations, but delays in signing software contracts in the UK, Switzerland and in some Nordic countries have resulted in lower than expected revenues in the EMEA region. That being the case, we'll be interested in seeing the effect on its results next quarter.

However, SAP's overall income results were satisfying. Its healthy order book, together with the reaffirmed schedule for new software product launches during H2 of this year, make for good business prospects. We are looking forward to seeing more details on Q2 and the full results for H1 2006 on 20 July.