German software maker SAP (NYSE: SAP) narrowly missed analysts' estimates in its second quarter, posting a profit of 491 million euros ($638 million), or 41 cents a share, on sales of 2.89 billion euros ($3.5 billion).
A survey of analysts by Thomson Reuters pegged the CRM and supply chain applications giant for a profit of 525 million euros in the quarter. In the year-ago quarter, SAP posted a profit of 426 million euros, or 36 cents a share.
The fortunes of SAP and other major enterprise software companies are closely watched by many in the industry, as both corporate technology buyers and vendors seek indications of whether IT budgets are again on the rise and new projects are taking shape.
For them, SAP may have some good news. During the quarter, software and software services revenue increased 16 percent from the year-ago quarter, rising to 2.26 billion euros from 1.95 billion euros. Total software sales increased 17 percent to 637 million euros from 543 million euros in the second quarter of 2009.
"Customers continue to invest for growth across large, midsized and small enterprises and within many industries," SAP Co-CEO Bill McDermott said in a statement. "We had outstanding growth in strategic markets like the U.S. and we saw continued double-digit growth in key emerging markets in Latin America and Asia."
"This solid performance is due to renewed customer confidence, an ever-expanding ecosystem, as well as focused execution on our go-to-market strategy," he said.
Investors, meanwhile, were displeased by SAP's solid, if not spectacular improvement in total software sales and profits, and pushed SAP shares down $1.49 a share, or 3 percent, to $47.12 after the earnings release.
Company officials told analysts that its second-quarter profits were dinged by a currency loss and severance paid to a pair of former executives in the wake of a management shakeupearlier this year.
The severance payouts to former CEO Leo Apotheker and former board member John Schwarz clipped 11 million euros from its bottom line. SAP also said it absorbed a hit of roughly of 86 million euros due to unfavorable currency exchange rates in Europe. To be fair, IBM (NYSE: IBM) blamed unpredictable currency rates and a much-stronger-than-expected U.S. dollarfor trimming nearly half a billion dollars off its second-quarter revenue total.
Sybase payoff, Business ByDesign ahead
On the plus side, SAP also said that it has officially closed its $5.8 billion acquisition of database software developer Sybase, a purchase that it says will increase software and software-related service sales between 9 percent and 11 percent for the remainder of 2010.
Continuing to look ahead, SAP confirmed that it will finally release the latest version of its oft-delayed SaaS suite, Business ByDesign, later this week. Analysts, customers and competitors have mocked SAP for failing to deliver the on-demand suite for more than two yearsand many customers have cited the company's flagging on-demand strategy and product line as the reason they've chosen IBM and Oracle (NASDAQ: ORCL) for their next generation of business apps.
SAP Co-CEO Jim Hagemann Snabe told analysts that SAP has a pipeline of "thousands of customers" awaiting Business ByDesign and that the service will have all the functionality customers need to run their entire business from on-demand applications.
SAP officials said the company will continue to target SMBs as well as top-tier enterprise customers to drive growth through the remainder of 2010 and beyond.
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