SAP Profits Up 8 Percent

SAP AG reported an 8 percent jump in its second-quarter net income on Thursday, helped by a sharp increase in revenue from new software licenses.

The company also disclosed that a manager at its TomorrowNow subsidiary has been suspended in connection with Oracle Corp.'s lawsuit accusing SAP of corporate theft.

Net income for the quarter was ,449 million (US$605 million as of June 30, the last day of the period being reported), up from ,415 million in the second quarter last year. That was equal to earnings of ,0.37 per share, up from ,0.34 per share a year earlier.

Revenue from new software licenses climbed 18 percent to ,715 million, from ,604 million last year. Total revenue, including maintenance fees, support and other services, climbed 10 percent to ,2.4 billion, up from ,2.2 billion in the second quarter of 2006.

The results were better than some analysts had expected and showed that SAP is continuing to add new customers even while its main rival, Oracle Corp., grows its applications business through acquisitions. For the comparable period, its financial quarter ending May 31, Oracle increased revenue from new applications licenses by 13 percent, to $641 million.

In SAP's biggest market -- Europe, the Middle East and Africa -- total revenue was up by 12 percent, to ,1.27 billion. Growth in the Americas, dragged down by the strong euro against the U.S. dollar, was just 6 percent, to give revenue of ,853 million. SAP continues to grow fastest in Asia, where revenue climbed 20 percent to ,304 million.

In a conference call with press and analysts, CEO Henning Kagermann said the company had "an excellent quarter." SAP continues to invest heavily in new products for the midmarket. It is spending ,300 million to ,400 million over two years to develop a new suite of on-demand applications, code-named A1S, that are intended to offset slower growth from large enterprises.

The company will provide more information about A1S, including its proper name and some reference customers that have been using it, in September, Kagermann said. The software is designed for what SAP says is an untapped market, for smaller companies that want a full suite of hosted ERP (enterprise resource planning) applications that can be set up and used easily.

Customers are adopting SAP's Netweaver infrastructure software at a fast pace, according to Kagermann. Revenue from Netweaver products grew 50 percent from a year earlier, and SAP now has 9,000 customers running production applications on the software. "It shows you it is being accepted by the market," he said.

The results come as SAP continues to battle Oracle in U.S. court for alleged corporate theft. Oracle charged that SAP's TomorrowNow subsidiary hacked into Oracle's customer support Web site and downloaded software fixes and support materials for Oracle's PeopleSoft and JD Edwards applications. SAP planned to use the materials to offer cut-rate services to Oracle customers, according to Oracle's lawsuit.

In its response last month, SAP admitted that TomorrowNow employees had made some "inappropriate" downloads of Oracle materials. But it played down the extent of the transgressions and said SAP itself did not have access to the materials. A case management conference is set for September.

On Thursday, Kagermann said the SAP Americas executive appointed to take charge of TomorrowNow, Mark White, has terminated or suspended some employees involved in the matter. "He suspended the manager in charge of the business," Kagermann said. He did not name the manager but said later that it was not TomorrowNow CEO Andrew Nelson.

SAP wouldn't say how much money it has set aside to cover potential costs of the lawsuit, but it indicated that it was less than ,10 million.

Discussing SAP's growth, executives on the call said the U.S. would "remain strong" but would not grow as fast as in the past. Europe will continue to do well, but Asia, a relatively small part of SAP's business today, has become its "number-one growth engine for the future," Kagermann said.

The growth there is coming primarily from Japan, China and India, he said.

The company's business has seen a recovery in Japan driven by manufacturing, and SAP recently signed a global contract with Hitachi Ltd. In China, SAP has about 2,000 customers from all industry sectors, and the vast majority are Chinese rather than multinationals, he said.