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SAP bests forecasts, increases market share

Shares in the German software giant rise more than 3 percent after the company says its quarterly license sales are up 17 percent.

SAP, the world's biggest maker of business software, reported better than expected first-quarter license sales on Thursday, defying concerns about the health of the software sector as it took a bigger share of the market from rivals.

Shares in SAP rose more than 3 percent in an otherwise lackluster German market after the company said its license sales were up 17 percent in the quarter, driven by gains in the United States but strong across all regions and unexpectedly so in Europe.

While archrival Oracle began to digest its $10.6 billion acquisition of PeopleSoft, and Siebel cut its outlook, SAP's focus on a broader, more integrated software portfolio and beefed-up sales force appeared to pay off.


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Its first-quarter license sales of about $567 million (434 million euros)--which bring future maintenance and service deals--easily beat the average forecast of 408 million euros in a Reuters poll of 22 analysts.

In the United States--the world's biggest software market, and the market where SAP generates nearly a third of its revenue--the company's market share increased to 41 percent from 38 percent a quarter earlier. Globally it rose to 58 percent from 55 percent.

SAP, whose major contract wins in the quarter included deals with U.S. luggage maker Samsonite and Danish brewer Carlsberg, defines its peer group as Oracle, Siebel and the business-software unit of Microsoft.

The company stuck to its forecast of license sales growing 10 to 12 percent this year and earnings per share of between 4.7 euros and 4.8 euros, despite the better-than-expected first quarter, when total revenue rose 11 percent to about $2.26 billion (1.73 billion euros).

SAP shares were up 3.1 percent at 119.02 euros by 0920 GMT, the top gainer in an overall flat blue-chip DAX index.

At the same time the DJ Stoxx European Technology index was up 0.71 percent at 232.61 points. The results earned the company upgrades from more than one bank.

"Fantastic--they crushed the numbers across the board," said JPMorgan software analyst John Segrich. "Every geography was ahead of what the Street thought.

"The Americas continues to be exceptionally strong, and Europe grew 18 percent not including Germany, which is way better than any expectations, certainly considering all the negativity you get about how bad Europe is for business."

Smith Barney upgraded the stock to "buy" from "hold," and WestLB also upped it to "buy" from "outperform".

Bottom line holds up
Fears that profits might suffer as SAP hires 3,000 extra staff this year were largely unrealized, although the company only reiterated a forecast of a rise of up to 0.5 percentage points in its pro-forma operating profit margin this year.

Pro-forma operating profits, excluding stock-based compensation and acquisition-related charges, grew 15 percent to about $497 million (381 million euros), broadly in line with analysts' forecasts, while net profit was also in line, up 11 percent at about $332 million (254 million euros).

The pro-forma margin was 22 percent in the March quarter, around 1 percentage point higher than a year ago.

At about $1.09 billion (832 million euros), free cashflow fell to 48 percent of revenue from 53 percent a year ago because of increased investments, SAP said.

But the company increased its liquid assets to about $5.22 billion (4 billion euros) as of March 31 from $4.17 billion (3.2 billion euros) at the end of 2004, giving it the means to pursue acquisitions after losing a bidding war for U.S. retail software specialist Retek to Oracle.

Chief Executive Henning Kagermann indicated in a Reuters interview last month he could consider a share buyback, for which SAP has shareholder approval, once this level was reached.

SAP, which works with key clients in developing software for specific industries, differs from its rivals not only in its European base--all its competitors are in the United States--but also in its product offering.

Its software aims to harmonize the workings of systems used to run the various parts of a company's business--such as human resources or supply chain management--while its rivals offer more specialized, standalone software.

Oracle's products center around databases, while Siebel's are designed for managing customer sales accounts.

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