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January 28, 2009

SAP survives ’08 with a little help from Business Objects

Cost cuts will see it shed 3,000 staff

By Jason Stamper

Enterprise applications behemoth SAP posted preliminary fiscal 2008 revenue up 13% to €11.57 billion, but citing the “worst economic and financial crisis the world has witnessed in decades” it said it will cut 3,000 jobs by the end of 2009.

“2008 can be described as a year having two completely opposite halves, where a strong first half performance was greatly disrupted late in the third quarter by the beginning of the worst economic and financial crisis the world has witnessed in decades,” said Henning Kagermann, co-CEO of SAP. “Nevertheless, in total we had a good year amid a very tough economic climate, posting full-year, double-digit growth in software and software related service revenues.”

Preliminary full-year 2008 GAAP software and software-related service revenues, including the benefit of the revenue it garnered through the $6.8bn acquisition of Business Objects in October 2007, were €8.46bn, an increase of 14% compared to 2007. Fourth quarter 2008 software and software-related service revenues were €2.67bn, up a less impressive 8% year on year.

Excluding the contribution from Business Objects, SAP’s business contributed 6% to the constant currency growth of the non-GAAP software and software-related service revenues for FY’08. But for the fourth quarter, taking out Business Objects saw SAP’s continuing operations contributing a negative 6% to software and software-related services.

SAP posted non-GAAP operating income up 24% at constant currencies; non-GAAP operating margin up 1.1% at constant currencies and non-GAAP earnings per share up by 16%.

“The Company expects the 2009 operating environment to remain challenging,” SAP said. “In addition, 2009 will no longer include the positive effects from the acquisition of Business Objects, and the 2009 first-half results will be a difficult comparison to the strong results reported in the first half of 2008, which was prior to the economic crisis that disrupted the global markets in the third quarter of 2008.”

The cost-cutting measures, which it kicked off last October, will see the loss of around 3,000 jobs through 2009, and this in turn will save the company €300m to €350m annually.

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“We believe the cost containment measures will allow us to adapt to the tough market conditions and ensure the long term competitiveness of the company,” said Léo Apotheker, the other co-CEO of SAP. “Moreover, we expect 2009 to be a year of limited visibility, making it increasingly difficult to project sales in this environment.”

“In 2009, we will continue to deliver to customers products targeted at specific business processes to alleviate pain points caused by the challenging environment since customers need flexibility, agility and visibility into their businesses now more than ever,” said Apotheker. “These products are designed for fast implementations and quick returns on investment.”

Apotheker added, “This is not the first time we have experienced tough economic times and we believe we are well-prepared to endure it. With competitive products, a solid business model, a high percentage of recurring revenues and flexibility in the cost base, we expect to emerge from this challenging environment a stronger and more competitive company, while maintaining a firm hold on our industry leading position.”

If any doubt remains that Business Objects saved the day for SAP’s fiscal 2008, one need only look at its market share stats. It says its worldwide share of what it calls Core Enterprise Applications came in at 32.8% by the end of the year. Of that, 0.9% came from organic growth and 3.5% from the acquisition of Business Objects.

SAP is by no means short of cash: it finished the year with total group liquidity of €1.7 billion.

“Due to the continued uncertainty surrounding the economic and business environment, the company will not provide a specific outlook for software and software-related service revenues for the full-year 2009,” SAP said.

But it said some of its operating margin calculations are based on an assumption that non-GAAP software and software-related service revenues will be flat to a decline of 1% at constant currencies in 2009.

SAP said it will discontinue its US GAAP [generally accepted accounting principles] reporting and will only report financial data under IFRS from 2010 onwards.

The firm says it has 82,000 customers in over 120 countries.


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