SAP Predicts Brighter Future as Q2 Profits Rise

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SAP reported a 4 percent year-on-year increase in net income for the second quarter, even as revenue dropped 10 percent. The company is now more optimistic about its prospects for the full year, but despite the improved profitability, will continue to keep a tight rein on costs, it said Wednesday.

Net income for the quarter totaled €423 million (US$602 million), up 4 percent from €408 million a year earlier. Revenue dropped to €2.58 billion, down 10 percent from €2.86 billion a year earlier. Of that, €1.95 billion came from software and software-related services, down 5 percent from €2.06 billion a year earlier.

Software sales contributed €543 million to that total, 40 percent less than a year earlier. SAP blamed the decline on the tough comparison with a record second quarter in 2008, and on the difficult economic environment.

The company is, however, more optimistic about the outlook for the rest of this year than when it presented its first-quarter results in April.

"I am cautiously optimistic that the worst might be behind us," said CEO Léo Apotheker in a conference call with analysts. "Things are still tough but I think it's safe to say we are seeing more stability."

While the company has more deals in the pipeline, however, "Closure rates are more volatile," he said, warning that "Customers are more optimistic but their buying behavior hasn't changed."

SAP raised its operating margin forecast for the full year to between 25.5 percent and 27 percent, compared to its earlier forecast of 24.5 percent to 25.5 percent, despite predicting a decline in software and software-related service revenue for the year of between 4 percent and 6 percent, where it had previously predicted a decline of less than 1 percent.

The company now expects restructuring charges this year to total €200 million; it had previously predicted that the charges could rise as high as €300 million as it set out to shed around 3,000 employees. So far this year, it has taken a charge of €165 million to shed 2,800 staff.

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