3rd UPDATE: SAP Slips As Sales Weaken Outside Americas

SAP AG (SAP) Tuesday raised its 2010 sales outlook as a result of the acquisition of U.S. software vendor Sybase Inc. (SY) and posted a 15% rise in second-quarter net profit driven by higher software sales in the Americas, but other markets performed less well.

The business software giant, which competes with Microsoft Corp. (MSFT) and Oracle Corp. (ORCL), said net profit in the quarter ended June 30 rose to EUR491 million from EUR426 million a year earlier.

Software and software-related services revenue--a key performance figure that reflects revenue from software sales, maintenance and consulting services--increased 16% to EUR2.26 billion. At constant currencies and on a non-IFRS basis, SAP's preferred measure, the key figure was up just 8%.

The main revenue driver was the Americas, where software revenue on a non-IFRS basis and at constant currencies rose 40%. However, software revenue dropped by 12% in Europe, Middle East and Africa and by 6% in Asia Pacific/Japan.

Software revenue is new business that also secures maintenance revenue in the years ahead.

"Second-quarter headline numbers blew away consensus due to a great performance in the Americas. But adjusted for currency effects the result is less good with a striking divergence between the Americas and elsewhere," said WestLB analyst Jonathan Crozier, with an add rating on the share and EUR37.30 target price.

Co-CEO Bill McDermott attributed the weaker second quarter sales in Asia Pacific to Japan, where the economic recovery has been slower than elsewhere in a region where SAP posted double-digit growth overall.

"In Europe it is more a matter of timing," McDermott said, without elaborating. He said that of the 11,000 deals SAP secured in the second quarter globally, just 4,000 came from Europe and none of those was worth more than EUR3 million.

At 1220 GMT, SAP shares were down 2.1% at EUR36.49, the second biggest faller on Frankfurt's DAX, as investors reacted to the less convincing performance outside the Americas.

SAP tightened its view for full year software-related service revenue, excluding Sybase, to a rise of between 6% and 8% from previous guidance for a rise of between 4% and 8%. In 2009, software-related service revenue was EUR8.2 billion.

SAP said it still expects its operating margin to rise to between 30% and 31% from 27.4%.

Including Sybase, in which SAP now has a 92% stake, it expects to increase software and software-related service revenue between 9% and 11% in 2010. The operating margin won't be influenced by the Sybase acquisition.

The European Commission recently cleared SAP's $5.8 billion acquisition of U.S. database maker Sybase, which last week reported very strong earnings, buoying SAP stock.

The deal is SAP's largest since its 2007 $6.8 billion buy of Business Objects SA, and comes as it attempts to keep pace with Oracle in the business software market.

In June, Oracle said its fiscal fourth-quarter profit climbed 25% as it benefited from new revenue from its Sun Microsystems acquisition, as well as strong demand for software licenses.

Still, analysts said at the time that SAP's Sybase acquisition may increase pricing pressure on the U.S. company.

-By Archibald Preuschat, Dow Jones Newswires; [phone]; [e-mail]