SAP sees profitability rise on new web products
By Harro Ten Wolde
FRANKFURT (Reuters) - German business software group SAP said its profit would grow faster than revenues from traditional software and related services, helped by new web software products like cloud-computing and data analysis.
SAP, based in Walldorf, southern Germany, is betting on faster growing, web-based software products that are less vulnerable to the economic downturn as there are no upfront costs for program licenses, hardware or installation.
SAP said on Wednesday it expected operating profit this year to be 5.85-5.95 billion euros at constant currencies, up 12-14 percent from 5.21 billion in 2012, and beating an average analyst forecast for a 6 percent rise in a Reuters poll.
However, revenue growth in software and software-related services as a whole would slow to 11-13 percent this year after a 17 percent jump to 13.2 billion euros ($17.5 billion) last year, SAP said.
Software sales generate high-margin, long-term maintenance contracts and are an important gauge of future profit.
Goldman Sachs analyst Mohammed Moawalla said SAP's outlook implied an improvement of 60-70 basis points in this year's operating margin to 32.3 percent at constant currencies.
"We believe that 2012-13 are peak years of investments and we expect better operating leverage going forward," he said in a client note, rating the shares 'buy'.
SAP shares were up 2.5 percent by 6.00 a.m. ET, partly erasing last week's drop when it announced worse-than-expected quarterly revenue and operating profit and investors feared it was failing to keep up with arch-rival Oracle. Continued...