SAP posts weak earnings and delays product launch

SAP posts weak earnings and delays product launch
Photo: DPA
German software giant SAP said Wednesday that first quarter net profit fell 22 percent and disappointed investors as it delayed the launch of a new product for small- and medium-sized enterprises.

SAP said profit fell to €242 million ($377 million) owing to increased spending on the launch of its Business ByDesign software and charges related to a recent major acquisition. Analysts had expected net profit of €298 million euros.

Shares in the professional software giant plunged in early Frankfurt trading, shedding 4.36 percent to 31.61 euros, while the Dax index of leading shares was flat overall.

“The figures across the board were below expectations; net profit looks especially weak,” said a local trader in his first reaction.

Another said bluntly: “This was a very bad report.”

SAP’s operating margin, a key gauge of profitability, narrowed to 14.6 percent from 20 percent in the year-earlier period, hit by about €40 million of additional costs to attract customers to the new software.

Software revenues, another important indicator for the sector, increased however by 11 percent to €622 million. SAP also said it was changing launch plans for Business ByDesign software and now expected to reach its target of €1 billion in revenue from it between 12 and 18 months later than the original 2010 target.

Press reports have said SAP is having problems with the product, which was billed as a pillar of future growth. This year, SAP will launch the software in only six countries, with other roll-outs expected in 2009.

“Since September, the group is working closely with clients and partners to validate and adjust solutions,” SAP said.

It expected “significantly” fewer than 1,000 customers to buy the product this year and did not foresee reaching its target of 10,000 customers earlier than 2011, a year later than planned.

Meanwhile, total revenue in the first quarter rose to €2.46 billion from €2.16 billion a year earlier, the group said. Operating profit came in at €359 million, down from €436 million, as SAP continued to integrate the French company Business Objects, which it bought last year for €4.8 billion.

SAP raised its 2008 forecast for operating margin to 28.5 to 29 percent as it cuts spending on Business ByDesign by about €100 million this year.