In Q4 total year on year revenue increased 8%, or 12% on a constant currency basis, to 2,401m euros ($3,140m) while software revenue also showed an 8% (11% constant currency) growth rate rising from 931m euros ($1,217m) to 1,003m euros ($1,311m).
Net income for the quarter was up 29% from 420m euros ($549m) to 542m euros ($708m) but was in line with a range of analyst estimates that stretched from 495m euros ($647m) to 557m euros ($728m).
For the full year total revenue grew from 7,025m euros ($9,187m) for fiscal 2003 to 7,514m euros ($9,826m). Within that, software revenue hit 2,362m euros ($3,089m) up from 2,147m euros ($2,807m). Net income increased from 1,077m euros ($1,408m) to 1,311m euros ($1,714m).
The US was the engine for the quarter’s growth. Historically, it has been a difficult market for SAP but the company is now reaping the benefits of its last major reorganization and has been growing for the last two years.
The Americas region contributed 780m euros ($1,020m) to the overall total, up 24% year on year, of which North America accounted for 625m euros ($817m), a 27% increase.
The effects of this trend were boosted by uncertainty over the Oracle/PeopleSoft situation. Even though the acquisition question has now been resolved, SAP may briefly carry on benefiting as users continue to hold back on purchases while they assess the new entity.
SAP is hoping to gain revenue from the Safe Passage program for PeopleSoft and JD Edwards customers it announced last week, but did not offer up any revenue expectations.
Its SME initiative also contributed to growth, with 31% of the order value throughout 2004 coming from that sector. The All-in-One customer base rose from 1,400 in 2003 to 6,000 at the end of 2004, while the Business One base grew from 2,800 to 5,300.
During Q4 the company completed 21% more deals than a year ago and its partner channel started to show strength, with a 47% increase in indirect contracts. However, the channel program is ramping up from a low base.
The SAP business model is changing, with a clear and ongoing trend towards smaller deals and contracts with small to medium sized companies. During the final quarter of 2004, 42% of SAP’s deals were below 1m euros ($1.3m) compared to 40% in Q4 2003 and 31% in Q4 2002.
The percentage of deals in the 1m euro ($1.3m) to 5m euro ($6.5m) category dropped from 41% in 2002 to 38% in 2003 to 36% in 2004. Large deals over 5m euro ($6.5m) dropped from 28% in the equivalent quarter in 2002 to 22% in both Q4 2003 and 2004. As well as a rise in SME contracts, customers are also opting for incremental purchases. New customers accounted for 24% of order entry value.
Looking out to 2005, SAP anticipates that software revenues will grow by 10% to 12% over the full year. However the increase will not be reflected in higher margins because the company has committed to increase spending next year. It plans to increase headcount by 3,000 over the year, mostly in low-cost locations such as Bangalore.
Much of the investment will be ploughed into R&D as it continues to develop its NetWeaver solution and the underlying Enterprise Services Architecture.
It has a three-year plan to evolve the existing NetWeaver integration platform into a Composition Platform supporting packaged, ready to run generic business processes accessed via Enterprise Services, and then a complete Business Process Platform for use by SAP, customers and ISVs to build and deploy the specialist business processes needed by individual companies to provide them with a competitive edge.
