SAP hurt by development costs

SAP reported a 10 percent rise in revenue for the fourth quarter, but earnings fell 6 percent compared to a year earlier, dragged down in part by the cost of launching Business ByDesign, a new offering for the mid-market, the company said this week.

Revenue for the fourth quarter totalled 3.24 billion euros ($4.77 billion as of 31 December, the last day of the period reported), up 10 percent from 2.95 billion euros a year earlier, but net income fell 6 percent to 756 million euros.

Software and related services revenue grew at 13 percent year on year, while consulting activities, representing around a fifth of SAP's revenue, remained stagnant.

For the full year, revenue rose to 10.25 billion euros, up 9 percent from 9.39 billion euros, while net income rose to 1.92 billion euros, up 3 percent from 1.87 billion euros.

The results do not include any revenue gains from SAP's $6.8 billion acquisition of French business intelligence software vendor Business Objects, which the companies only completed on 16 January, although they do include 61 million euros in acquisition-related costs.

Developing Business ByDesign cost the company 125 million euros in 2007, 40 million euros of it in the fourth quarter, and the company expects to spend at least a further 175 million euros in 2008. An additional 50 million euros of expenditure will fall in late 2008 or early 2009.

Sales and related services for subscription-based products like the new ByDesign contributed just 53 million euros in the fourth quarter, up 47 percent year on year.

Looking ahead, CEO Henning Kagermann expects mid-market products like ByDesign to boost growth in 2008, he said during the conference call.

Another growth driver will be SAP's acquisition of Business Objects, which will help the company increase its penetration of the business user sector, Kagermann said.

"For SAP and Business Objects, this means cross-selling potential," said Deputy CEO Leo Apotheker.

The company sees potential for growth in the banking market, where concerns about the US subprime mortgage crisis are driving demand for more effective governance and business intelligence systems, Apotheker said.

Among the nine new products that SAP and Business Objects jointly announced on 16 January, were modules for financial performance management, governance, and risk and compliance.

SAP expects full-year revenue from software and software-related services to grow at between 24 percent and 27 percent. Excluding the contribution of Business Objects, SAP's existing activities will contribute between 12 and 14 percentage points, the company said.

SAP also announced the resignation of Business Objects' founder, chairman and chief strategy officer Bernard Liautaud. SAP plans to offer him a seat on the board in June.