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Author: Cornelia Wels-Maug
Yesterday, Software AG (SAG) announced interim results for Q3 ending 30 September. Revenues grew to €113.8m, up 10% (12% on a constant currency basis) year-on-year; operating income (EBIT) grew 11%, generating an EBIT margin of 22.5% compared to 22.3% in Q3 of 2005. Net profit was €17.1m, up 13%. Licence revenues grew 27% year-on-year to €37m and maintenance was up 5% at €48m, generating €85m in overall product revenues. Professional services declined 1% to €28.2m.
In his outlook for 2006, CEO Karl-Heinz Streibich stuck to a projected revenue increase of 10% on a constant-currency basis and an EBIT margin of 22% to 23%. However, Streibich increased the outlook for licences by three percentage points to 27% and maintenance by two points to 5%, whilst lowering that for services to 2%.
Comment: This is a good set of results, undoubtedly boosted by the good climate for mainframes: IBM z-Series enjoyed an excellent Q3. Streibich's decision to focus SAG on service oriented architecture (SOA), which combines nicely with its mainframe know-how and XML, is finally paying off. Sales of its Crossvision SOA product grew 76% in the quarter.
SAG is concentrating on its core competency, the licence business, which is becoming a growing maintenance business. It no longer regards its services business as core. With an eye on its overall profitability, SAG will only offer services that enable the use of its own products and is withdrawing from general IT services.
Having had problems in its home market Germany for some time, we welcome SAG's expansion into new geographies. It has just opened subsidiaries in Brazil, which has a growing mainframe market, and Japan, where it opened an office at the beginning of October. It also has plans to open a subsidiary in Kuwait to address the growing Middle East market. These are promising moves, though the initial ramp-up costs for this venture will have some effects on its profits.
Overall, SAG under Streibich is on a promising course, with a good product portfolio under the belt and a roadmap for further expansion planned.
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