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Updraft from Net software fuels strong SAP earnings

The software maker reports a 96 percent rise in third-quarter net income, driven by increased sales of its MySAP.com Net-based business software.

    Software giant SAP on Thursday reported stronger third-quarter earnings driven by increased sales of its MySAP.com Net-based business software.

    SAP
    Stock price from October 1999 to present.  
     Source: Prophet Finance
    The German software maker, which has faced some challenging quarters, said net income for the third quarter, ended Sept. 30, soared 96 percent to $74.9 million (88 million euros). This compares with net income of $38.3 million in the same period a year ago.

    Revenue for the quarter rose 27 percent to $1.2 billion from $952.9 million a year earlier. Product revenue for the quarter increased to $776.8 million from $519.9 million in the year-ago period, fueled by a strong jump in sales of the company's Internet-based products.

    While SAP reported a healthy quarter, the company?s shares slipped in early trading Thursday because quarterly revenues came in at the low end of some market projections. In afternoon trading, shares were down $3.13, or 6 percent, to $48.31.

    JP Morgan analyst Joe Bracken, who rates SAP stock as a "buy," said the consensus among several investment houses was that SAP would report revenue of $1.25 billion, which means SAP came in slightly below consensus.

    The market also projected that SAP would report a third-quarter operating income of $198.2 million vs. the actual figure of $171.9 million.

    "But, as far as we?re concerned, their numbers are in line with what we projected," Bracken said. SAP?s third-quarter earnings level "demonstrates that growth is strong on a year-over-year basis."

    Bracken added that sales for mySAP.com products should continue to increase in the coming quarter and that SAP has done a better job of marketing its message to existing and new customers.

    "The message is coming across that clearly SAP is becoming a strong force in the e-commerce market," he said. "We expect a strong fourth quarter."

    Like other leading software makers including Oracle and PeopleSoft, SAP has been aggressive in its efforts to deliver completely Web-based versions of its business applications--software that automates a wide range of business processes including those focused on a company's sales force, manufacturing needs, marketing efforts and financials.

    Though SAP has been criticized for being late to the Net, the company said it has picked up significant sales momentum and expects demand to continue growing in the current period.

    "While the fourth quarter of 1999 was extremely strong, we still expect solid top-line improvement for the fourth quarter of 2000," SAP chief executive Hasso Plattner said in a statement.

    Sales of MySAP.com Net software soared to $250.1 million and accounted for 61 percent of the company's total license revenue, compared with 47 percent in the second quarter, SAP said. New customers represented 49 percent of MySAP.com sales.

    SAP, which was applauded in June for entering a partnership with online marketplace maker Commerce One, pointed to a number of large customer wins during the quarter, such as Exxon Mobil, that helped fuel software sales growth.

    SAP and Commerce One in August introduced their first collaborative business-to-business effort with the development of Enporion. Enporion, which is scheduled to begin operating by the end of the year, is a global marketplace targeted at the energy industry and backed by a group of North American utilities.

    Also in the quarter, SAP launched a global advertising campaign to promote its Internet products. The campaign includes print and TV advertisements to be run in more than 25 countries.