SAP Growing Faster Than Oracle

SAP confirmed Tuesday the robust preliminary second-quarter financial results it released earlier this month, and, in a conference call with analysts, co-CEOs Bill McDermott and Jim Hagemann-Snabe added insight on the performance and comments about market-share gains against its biggest rival, Oracle.

Detailing SAP's best second quarter ever, McDermott noted that the company has grown 20% faster than Oracle in the enterprise applications market over the last 12 months. And detailing regional performance, he said SAP grew four times faster than Oracle in Europe and the Middle East and eight times faster in Asia Pacific and Japan.

SAP's quarterly performance was highlighted by 1.06 billion euros ($1.29 billion) in software revenue and a 15% increase over the year-earlier period in software and related service revenues to 3.14 billion euros ($3.82 billion) in constant currencies. The company racked up gains in all regions, including in Europe, the Middle East, and Africa, with a 22% increase in software revenue over the year-earlier period belying forecasts of weakness in Europe.

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McDermott said SAP is watching the debt crisis in Europe closely, but has seen strength in Northern Europe offsetting weakness in Southern Europe. "We can help companies that have to optimize supply chains, cut cost, and be more efficient, and we can also help those who have to expand in Europe or beyond Europe to compete, so we've got them covered if they're hurting or if they need to grow," McDermott said.

In the Americas, SAP reported a 32% increase in software revenue over the year-earlier period, with double-digit growth and "solid momentum," as described by McDermott, following "the adjustments we made" at the start of the quarter, a reference to the departure of SAP North America president Bob Courteau and his replacement by Geraldine McBride.

SAP's strong performance was greeted with cautious optimism by Wall Street analysts, with Nomura's Rick Sherlund writing in a research note that "it will be important for management to convince investors that it did not drain its pipeline to make its aggressive 2Q guidance." But McDermott insisted during Tuesday's conference call that SAP did not rush deals from the third quarter into the second quarter.

The SAP Hana (database) pipeline now exceeds 1.5 billion euros ($1.8 billion), the mobile applications and infrastructure pipeline exceeds $800 million euros ($966 million), and the core (applications and analytics) pipeline has increased by double digits over the second quarter of 2011, according to McDermott. Hana, mobile, and cloud-computing sales are all poised for triple-digit growth, McDermott said, though the cloud performance is no surprise given the acquisition of SuccessFactors, which was completed in February.

SAP's planned $4.3 billion acquisition of Aribe will also boost cloud revenue, but company executives acknowledged that that acquisition has been pushed back into the fourth quarter due to a second request by U.S. regulators for more information about the proposed acquisition. SAP CFO Werner Brandt described that request as "quite normal" and said the company expects the deal to be approved.

Pointing to 10 consecutive quarters of double-digit growth, SAP co-CEO Jim Hagemann-Snabe said SAP's strategy of delivering innovations with Hana, mobile, and edge applications in the cloud without disrupting core applications like ERP and analytics is "the right strategy." And citing yet more contrasts with Oracle, he said that the rival's move into hardware is "disrupting IT landscapes" and he claimed that SAP is winning eight out of 10 deals in which it competes against the company.

"Total IT spend [including hardware] is likely to grow at a maximum of 5% per year in the coming years, innovative business software, our segment, is growing by more than 11%," said Snabe, meaning SAP's strategy is capitalizing on what he called a transformation in IT spending.