SAP is putting
the brakes on the roll-out of Business
ByDesign, its offering for small businesses, it said Wednesday, as it reported
first quarter net income down 22 percent compared to a year earlier, on revenue
up 14 percent. The quarter is the first to incorporate the results of Business
Objects, which SAP
acquired Jan. 21.

The company said it is cutting investment in Business ByDesign, and will miss
its target of US$1 billion in revenue and 10,000 customers for the product by
2010. It will now take a year to 18 months longer to reach that level, as it
works with customers and partners to fine-tune the product, it said.

SAP is in no rush to deploy the product more widely until it is sure it can
deliver it profitably, said co-CEO Henning Kagermann in a conference call with
journalists and analysts.

"We have to work out how expensive it will be for SAP if we run this product
in a hosted environment. We have to make sure we make enough money with the
product," he said.

To do that, SAP will take more time to optimize the end-to-end process of selling,
delivering and running Business ByDesign, he said.

"We have too many manual steps in our hosting environment. We have to
improve that," Kagermann said.

SAP reported signing up more than 1,570 small and medium-size businesses (SMBs)
as new customers in the first quarter, excluding those brought by Business Objects,
but few of those are using ByDesign. SAP expects to engage with fewer than 1,000
Business ByDesign customers in total this year, it said, and will concentrate
its sales efforts on just six countries where the most productive early customers
are based.

It will delay rolling Business ByDesign out to other countries until next year,
and as a result will invest around €100 million ($158 million) less in
the product this year than it previously planned, cutting investment to between
€75 million and €125 million.

That will help boost SAP's operating margin, which dropped to 14.6 percent
for the first quarter, down from 20.2 percent a year earlier.

The company reported net income of €242 million for the quarter, on revenue
of €2.46 billion, compared to net income of €310 million on revenue
of €2.16 billion a year earlier.

Analysts had expected revenue to rise around 40 percent to $3.96 billion (€2.51
billion), according to a consensus poll of 13 analysts by Thomson Financial
Network.

The results incorporate those of Business Objects from Jan. 21, excluding some
ongoing support revenue that U.S. Generally Accepted Accounting Principles (GAAP)
prevent SAP from recognizing. The results are preliminary, and depend on the
as-yet undecided final purchase price allocation SAP must make for its acquisition
of Business Objects.

Charges associated with that acquisition also dragged down SAP's operating
income by €130 million, although those numbers "are simply accounting
driven," said Chief Financial Officer Werner Brandt.

The strengthening of the euro against the dollar also hurt SAP's results, "resulting
in a huge negative headwind for SAP, roughly 10 percentage points," said
Kagermann.

He preferred to focus analysis on non-GAAP figures, excluding currency effects
and acquisition costs. On that basis, SAP's first-quarter revenue rose 22 percent,
and net income rose 7 percent, the company said.

Looking ahead, SAP expects full-year software and software-related service
revenue to increase by between 24 percent and 27 percent at constant exchange
rates. Around half of that growth will come from SAP's ongoing business, and
half from Business Objects, it said.

Analysts see SAP's revenue growing at around 26.5 percent during the current
quarter, but slipping back in the third quarter to around 16 percent for a full-year
average of 26.9 percent, according to the Thomson poll.

SAP raised its operating margin expectations for the full year, to between
28.5 percent and 29 percent at constant exchange rates, compared to 27.3 percent
in 2007. It had previously indicated a range of 27.5 percent to 28 percent.
The expected improvement will come from the reduction in SAP's investment in
Business ByDesign.

The company plans to maximize the return on its investment to date in Business
ByDesign by reusing its innovations and technologies in existing products, a
move it expects will contribute significantly to revenue in 2010. Nevertheless,
the company said it maintains its full confidence in the Business ByDesign and
the associated business model.

IDG News Service

• Email
• Print
• Share
  • Slashdot
  • Digg
  • Stumble
  • Reddit
  • Newsvine