SAP earnings a reality check

Despite a significant increase in revenue, SAP's growth rates are starting to come out of the clouds and down to a more earthly level.

2 min read
SAP's growth rates are starting to come out of the clouds and down to a more earthly level.

As expected, the German software giant announced today that its sales increased 54 percent for the first nine months of 1998 from last year's like period, to $3.6 billion. The company's third-quarter revenue also was up from the same period last year, about 43 percent to $1.2 billion.

But SAP executives are still warning that growth for the overall year will be lower than years past, as market and economic conditions begin to take their toll on enterprise resource planning vendors in general.

"The company extended its record of rapid growth despite the ongoing economic crisis in Japan and unfavorable exchange rate trends," SAP executives said in statement, adding that they expect some moderation of demand as their customers evaluate their year 2000 issues.

"Against this background, we are confident of our earlier expectations that we will be able to grow pre-tax profits for the current year, excluding provisions for the STAR program [SAP's employee stock appreciation rights program], by 30 percent to 35 percent, and sales by around 40 percent," said Henning Kagermann, co-chairman of SAP.

Third-quarter revenue grew to $1.2 billion, a 43 percent leap from the same period last year. Including a $5.38 million charge related to the STAR program, costs rose 46 percent to $1 billion. Profits leaped 50 percent to $221 million during the quarter from last year's like period, and during the first nine months, profits grew 45 percent to $709 million.

Asia Pacific was the only region not to grow during the period. Sales were down 20 percent in most areas of that region.

"We have reviewed the current situation in Japan in detail and do not expect the economy to rebound quickly," said Hasso Plattner, co-chairman of SAP. "However, SAP's position in Japan and the rest of Asia remains strong, and seizing the long-term growth opportunities in the region remains a core commitment for us."

But Wall Street is predicting that the market in general is slowing. A number of analysts downgraded their earnings outlooks on SAPand other players in recent weeks, saying that the glory days for ERP [enterprise resource planning] are over and that stock prices are settling in to a more reasonable and sustainable level.