SAP chief wishes Oracle 'good luck'

German giant's CEO says he doubts Oracle can succeed in its bid to oust SAP from its market-leading position.

Reuters

Feb. 25, 2005 8:00 a.m. PT

2 min read

Profit margins at Germany's SAP could stagnate this year as the software maker hires 3,000 workers for a major sales push, the company said Wednesday.

The sales push is aimed at lifting license revenues by 10 percent to 12 percent this year, as SAP tries to exploit a window to win market share while Oracle integrates its recent acquisition, PeopleSoft. The license sales forecast for 2005 compared with an average of 10 percent predicted by 21 analysts in a Reuters poll.

Chief Executive Henning Kagermann hinted in the interview that he doubts Oracle can succeed in its bid to oust SAP from its market-leading position by launching products that merge Oracle's own software with PeopleSoft's in two to three years. "It would be the first time so few people with so few resources and so little time had achieved so much," he said. "I can only say: Good luck." Meanwhile, SAP added that it expects its pro-forma operating profit margin to increase by only zero to 0.5 percentage points this year.

The muted profit outlook contrasted with rival Oracle's forecast on Wednesday that its earnings will beat Wall Street estimates this year and next, growing 24 percent in 2005 and between 22 and 28 percent in 2006.

Kagermann denied the company is sacrificing profit margins for the sake of growth.

"I expect margins to rise by a percentage point or more in 2006, and by 2007 you will see the results of our investments," he said. "We will come back to our midterm goal of over 30 percent in 2007."

SAP had previously targeted a 1 percentage-point annual rise in its pro-forma operating profit margin--excluding stock-based compensation and acquisition-related charges--but had already warned that goal could be delayed.

The company added 9 percent, or 2,595 staff, to its head count last year, and staff numbers will rise by 9 percent again this year. Some 600 of the 3,000 new staff will be hired in Germany, executives said at a news conference.

In the fourth quarter, pro-forma operating income rose by 11 percent year over year to $1.11 billion (851 million euros), in line with the Reuters poll average, while net profit came in at the high end of expectations, rising 29 percent to $708 million.

The company confirmed that fourth-quarter license sales rose 8 percent to $1.3 billion while total sales increased 8 percent to $3.1 billion, as it said in preliminary figures two weeks ago.

SAP, which has launched an offensive to win former PeopleSoft customers after the U.S. software maker was taken over by Oracle, said its U.S. market share grew to 38 percent at the end of December from 37 percent at the end of September.

Its global market share in business software--which it sells mainly to large firms to help them manage functions from payroll to supply-chain management to customer relations--increased to 57 percent from 56 percent.