SAP: Customer spending stable after weak 2Q

FRANKFURT, July 20 - Software maker SAP said customer spending was stable and it was still winning business from competitors after it warned last week that second-quarter sales and operating earnings missed expectations.

In its detailed second-quarter results statement on Thursday, the German company said its market share had risen slightly against a group of 30 competitors, although it admitted last week it had lost share to arch-rival Oracle.

Second-quarter net profit rose to 414 million euros (US$517 million), SAP said, exceeding the 359 million euros predicted on average by 24 analysts polled by Reuters, thanks to a one-off tax benefit in the quarter.

But SAP stuck to its full-year pro-forma earnings per share guidance - excluding costs related to stock options and acquisitions - of 5.80 to 6.00 euros, raising the question of whether they expected the gain to be reversed later in the year.

"The only confusion is going to be: Have they effectively lowered the earnings guidance or not?" asked JP Morgan analyst John Segrich. "We don't know much more than we did a week ago."

SAP shares rose 1 percent to 149.00 euros by 0712 GMT, slightly outperforming a 0.6 percent stronger German blue-chip DAX index.

"Order entry - a key indicator for future software revenues - and our win rate against competitors both remained strong. The customer spending environment is stable," chief executive Henning Kagermann said in the statement.

SAP said its share of the market rose to 21.7 percent from 21.4 percent at the end of the first quarter. It has redefined the relevant market as a group of 30 vendors of enterprise software applications, whose sales total US$16 billion.

SAP shocked investors last week by announcing that its second-quarter licence sales grew just 8 percent, compared with the 17 percent increase expected by the market.

The company, a leading maker of software that helps companies manage tasks ranging from payroll to supply management, blamed delayed deals and said it had been unable to realise some orders it had booked as revenue.

SAP shares fell to a six-month low on last week's warning, but still trade at 22 times forecast 2007 earnings, according to Reuters Estimates, far more expensive than Oracle's 13 times 2007/08 earnings.

Investors have proved willing to pay a large premium for SAP's strategy of organic growth over Oracle's strategy of pursuing large acquisitions.

The company will hold a conference on its quarterly results at 1200 GMT, which will be webcast at www.sap.com.

By: Georgina Prodhan

Copyright 2006 Reuters.

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