SAP is delaying the launch of its Business ByDesign on-demand software offering for small and medium-sized businesses, saying it needs to further automate some processes before the launch. That, coupled with a decline in earnings, sent the company’s shares lower.
By Maria Sheahan
SAP (NYSE: SAP) disappointed investors Wednesday when it delayed the rollout of its new Business ByDesign software product and reported weaker-than-expected first-quarter results.
At 11:31 a.m., shares of SAP were down 1.45 euros (US$2.26) or 4.38 percent at 31.60 euros ($49.21), while the DAX index was at 6,884.42 points, down 0.88 points or 0.01 percent.
“We expect some disappointment in the market today because license revenues were 10 percent below expectations and software and software-related service revenues were 3 percent below the consensus,” said Merck Finck analyst Theo Kitz.
Profit Slips
Net profit fell 22 percent to 242 million euros ($377 million) as the company spent more in the run-up to the planned launch of Business ByDesign and was hit by acquisition-related costs. The figure missed the consensus forecast of 298 million euros ($464 million).
Total revenue also missed consensus, rising to 2.460 billion euros ($3.83 billion), less than the 2.520 billion euros ($3.92 billion) expected.
First-quarter software and software-related service revenue climbed 14.6 percent, while software revenue rose 10.7 percent, missing estimates calling for an increase of nearly 23 percent.
“We see the risk that full-year growth targets could be missed,” said UniCredit analyst Knut Woller.
“Second-quarter comparables are a high barrier to cross, when both SAP and Business Objects reported clear double-digit license growth rates of around 20 percent year-on-year,” Woller commented.
SAP earlier said it still expects full-year software and software related service revenue — excluding a 180 million euros ($280.3 million) non-recurring revenue writedown from the acquisition of Business Objects — to increase in a range of 24 percent to 27 percent at constant currencies.
Launch Delayed
Further disappointing the market, SAP said it is reshuffling market launch plans for its Business ByDesign software products and as a result now expects to reach its target of $1 billion in revenue from Business ByDesign between 12 months and 18 months later than the original 2010 target.
“The slower than expected developments at Business ByDesign are not good news, but were to a certain extent to be expected, and good news is that Business ByDesign will (after 2008) no longer drag down earnings,” said MM Warburg analyst Michael Bahlmann.
On the upside, SAP raised its guidance for full-year operating margin to a range of 28.5 percent to 29.0 percent, compared with a previous target of 27.5 percent to 28.0 percent, as it cuts investments in Business ByDesign by about 100 million euros ($155.8 million) this year.
The target excludes a non-recurring deferred support revenue write-down from the acquisition of Business Objects and acquisition related charges.
The company previously said it planned to spend between 175 million euros ($272 million) and 225 million euros ($350.7 million) on the product this year.
Bottom Line Savings
UniCredit’s Woller pointed out that the lower level of investments will help the company’s bottom line this year.
SAP’s chief executive Henning Kagermann sought to calm jittery investors by saying the company is “totally committed” to Business ByDesign, adding the delay has nothing to do with the market environment.
He said the company will need the additional time to automate certain processes, ensuring that the product will be profitable when it hits the market.
CRM News: Vendors: SAP Delays Business ByDesign Launch After Tough Quarter
