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The tone during the release of SAP’s prelim Q1 numbers did not match the euphoria of its Q4 and full year results (see here). Sales execution problems in North America impacted overall group performance, although guidance for Q2 is strong. However, while the numbers are important, it was the commentary that provided the best insight into the company.
The North America problem led to an expected 4% decline in revenue for the region but the company is adamant that it was a local issue that has now been rectified. "Rest assured, these issues have been swiftly resolved," the company said during the conference call to discuss the preliminary results. Presumably referring to the departure of North America president Robert Courteau, SAP said it has made "some leadership adjustments that were the right ones at the right time."
Total revenue should come in at €3.35bn (an 11% increase), with an operating profit of €630m (up just 6%). The operating margin is expected to be down by 0.9 percentage points to 18.8%. The decline in America region revenue plus increased costs from a 1700 increase in headcount and its on-going acquisitions are making themselves felt.
Software and software-related service revenue is cited at €2.62bn, up 13% year on year. Software revenue growth is more muted at 4%, taking software sales to €640m. In EMEA software revenue is expected to be up 4% to €279m, with software and software-related service revenue rising 10% to €1233m. Although some parts of Europe started slowly SAP management says the region is on track. Its growth initiatives (HANA, mobile, cloud) will be important contributors to current and future performance but we’ll have to wait until April 25 for the detailed results.
Q2 should be better period. Software revenue (excluding acquisitions and currency fluctuations) is expected to grow by 15% to 20% yoy, with software and software-related service revenue growth anticipated to be in the 14% to 16% region.
One of the comments that caught our attention was the assertion that “Everyone carries a quota. We don’t have caddies. We don’t have people that are carrying other people’s bags.” With so much put into development and acquisitions over the past couple of years (the most recent being the Syclo mobile acquisition), SAP needs to gather in the returns. This comment is a real statement of intent which points to an even more intense go to market strategy. That will be needed given its ambition to establish itself as a database, mobile and cloud provider.
