SAP Fourth-Quarter Software Sales Hurt by Strengthening Euro

Jan 10, 2014 12:20 pm ET

(Updates with closing share price in fifth paragraph and analyst comment in last paragraph.)

Jan. 10 (Bloomberg) -- SAP AG, the largest maker of business-management software, reported a decline in software license sales and slowing growth of its Hana data-processing engine, hurt by a strengthening euro.

Sales of software licenses, a source of future service revenue, fell 2 percent to 1.9 billion euros ($2.6 billion), the Walldorf, Germany-based company said in a statement today. Analysts predicted license revenue of 1.92 billion euros, the average of estimates compiled by Bloomberg. Revenue from Hana, SAP’s fastest-growing product, missed SAP’s guidance for the full year because of currency effects.

Hana revenue was “a bit weaker than we expected,” Thomas Becker, an analyst at Commerzbank AG in Frankfurt, said in a note. Otherwise SAP showed “sound delivery with respect to the on-premise business and very solid cloud revenue,” he added.

More customers are discarding big software installations on their premises and instead choosing programs delivered over the Internet. That’s prompting SAP to weigh how to grab a bigger slice of the cloud market without hurting its older, more profitable license business.

SAP shares fell 1.2 percent to 61 euros, at the 5:30 p.m. market close in Frankfurt, valuing the company at 74.9 billion euros. The German company’s biggest rival, Redwood City, California-based Oracle Corp., added 0.5 percent to $37.82 in New York trading.

Cloud Subscriptions

Co-Chief Executive Officers Bill McDermott and Jim Hagemann Snabe, during their four-year tenure, have bolstered SAP’s on- demand software arsenal with acquisitions including SuccessFactors Inc., Ariba Inc. and Hybris AG. Cloud subscriptions rose 39 percent at constant currencies to 210 million euros, in line with an average analyst estimate.

“We are one of the few global tech companies that has successfully managed the transition to the cloud while growing our core business and improving our profitability at the same time,” McDermott and Snabe said in the statement.

Operating profit, excluding some items, rose 6 percent to 2.09 billion euros, compared with an average analyst projection of 2.1 billion euros.

Oracle last month reported that software-license sales for the quarter ended in November that were little changed. Infosys Ltd., India’s second-largest software exporter, today raised its annual sales forecast for a second consecutive quarter as an economic recovery prompts clients in Europe to spend more.

SAP, which relies for more than half of its business on North America and Asia, was hurt as the currency it reports in appreciated versus its peers, making SAP relatively more expensive abroad. The euro has gained 7.9 percent in the past 12 months, the best performer of 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted indexes.

Hana Growth

Analysts closely watch the growth of SAP’s rapid Hana data- processing engine, which brought the software maker into the database market and which the company is gradually developing as the basis of its entire product range.

Sales of Hana totaled 296 million euros in the fourth quarter, trimmed by a 31 million-euro effect from currency swings. That caused it to fall short of an average analyst estimate of 331 million euros. Taking into account exchange-rate effects, Hana’s full-year revenue of 633 million euros also fell short of SAP’s target range of 650 million euros to 700 million euros.

SAP spokesman Christoph Liedtke said the company hadn’t issued guidance for Hana on a constant currency basis as it didn’t foresee such exchange-rate fluctuations.

Research firm Gartner Inc. projected this week that the global enterprise-software market will grow 6.8 percent to about $320 billion this year, after a 5.2 percent gain in 2013. That pace would keep it as the fastest-growing segment of the information-technology industry, according to Gartner.

SAP is due on Jan. 21 to report detailed earnings and provide an outlook for 2014.

“Investors expected more of this Q4, which creates doubt about 2014 guidance,” Exane BNP Paribas analyst Brice Prunas wrote in a note.

--With assistance from David Goodman in London. Editors: Mark Beech, Robert Valpuesta