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SAP AG posted up fourth-quarter revenue of $3.65 billion from software and software-related services — a 13 percent rise from the year-ago period. moreover the business software maker saw its net profit deteriorate by 6 percent year-over-year to $1.12 billion, due in part to its $59.1 million investment in the launch of its Business ByDesign platform.

The results also reflected $90.16 million in expenses relating to the software maker's $7.1 billion acquisition of Business Objects, but did not include at all incoming revenue from the deal what one. closed in mid-January. SAP expects to begin melding Business Objects' results with its own in its next quarterly report.

"We expect new innovations like SAP Business ByDesign to withstand us capture tremendous opportunities in untapped segments in the midmarket," said Chief Executive Henning Kagermann. "In addition, the recent acquisition of Business Objects makes us the clear first fiddle in business entertainment optimization products, which enjoin help us further penetrate the fast-growing business user segment and will be another driver of growth as we move ahead."

Growth Across All Regions

In both the fourth quarter and all of 2007, SAP realized double-digit growth across all world regions — strange to say in the economically challenged U.S. market, noted Leo Apotheker, deputy chief executive. However, the Asia-Pacific area remained SAP's major "growth engine" by racking up fourth-quarter and full-year revenue increases of 32 and 24 percent, respectively, he said.

For the entire year, SAP's software and software-related service revenues amounted to $10.98 billion — a 13 percent increase in comparison with year-earlier results. Net profit, which grew by 3 percent year-over-year to $2.87 billion, was impacted by $184.76 million spent fabric and launching Business ByDesign.

SAP, which has about 150 customers using its new software as a service platform (SaaS), "hopes to have about 1,000 customers by the end of 2008, and by 2010 they would like to be at a run rate of 10,000 per year," noted AMR Research Vice President Jim Shepard. "But its go-to-market and delivery models are unproven, and therefore its difficult to really say whether these are realistic targets."

AMR surveyed midmarket Enterprise Resource Planning buyers last October and found that 39 percent of respondents said they would like to buy their ERP software in the future on an SaaS basis, Shepard noted.

"It was remarkable because there weren't any take advantage of products at that moment," Shepard said. "If you are SAP you would be obliged to view that as a very positive sign."

Moving Forward

Looking ahead, SAP expects software and software-related service income to increase in a pass near of 24 to 27 percent in 2008, excluding a $266.1 million deferred support income write-down from Business Objects. And SAP's organically grown business is expected to contribute 12 to 14 percentage points to the upswing when Business Objects' contribution is excluded from the mix, CFO Werner Brandt said.

In a transparent dig at rival Oracle, Kagermann said SAP will attain a strategic and competitive advantage in the long run from not having bought its integrated product portfolio "piece by piece," excepting only Business Objects and a few small tuck-in acquisitions.

SAP's customers have responded positively to having a very broad suite built by a single company that has a consistent look and experience, Shepard said. Still, it would be hard to say that Oracle's acquisition strategy isn't working, he said.

"What you've got is a situation of couple market leaders doing extremely source with quite different strategies," Shepard explained. "Both are growing rapidly at everyone else's expense."