UPDATE 3-SAP lags rivals as European growth crimped

Thu Apr 28, 2011 10:23am BST

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* Q1 total sales 3.02 bln euros vs Poll avg 3.06 bln euros * Q1 EBIT 779 mln euros vs Rtrs poll avg 852 mln euros

* Confirms 2011 outlook

* Shares down 6.2 pct, biggest European faller (Adds analyst comment, fund comment, updates shares)

By Nicola Leske

FRANKFURT, April 28 (Reuters) - German business software maker SAP AG's (SAPG.DE) first-quarter earnings fell short of results from its rivals and market expectations due to slower growth in the Middle East and Europe, especially in Germany.

SAP was expected to do well after U.S. technology bellwethers Oracle ORCL.O and IBM (IBM.N) showed strong results, signalling unimpaired global tech spending. [ID:nN24301684] [ID:nN1959077]

But while total sales were slightly below analyst estimates, SAP's operating profit clearly missed the average forecast, which had anticipated a 39 percent rise. [ID:nLDE73Q0DR]

SAP shares hit a one-month low and were on track for their biggest single-day percentage drop since October 2009. By 0917 GMT they were down 6.2 percent, making SAP the biggest loser in the FTSEurofirst 300 index .FTEU3.

"I believe SAP's disappointing performance is due to its strong position in Europe and the Middle East, where growth is limited," Cheuvreux analyst Bernd Laux said.

"Add to this the increasingly saturated business with big corporate customers and the fact that new products are still small, and it's clear why SAP is falling behind."

SAP has in the past relied on large, integrated software systems it has sold to many of the world's biggest companies. But it has been slow to adjust to offering on-demand services in an era of cost-cutting and cloud-computing.

It has however begun to gain traction with its business by design software targeted at mid-sized companies and now aims to have around 1,000 customers by year-end.

SAP currently has some 170,000 customers which include Apple (AAPL.O), Audi (NSUG.DE), GE (GE.N), McDonald's (MCD.N) and Pepsi (PEP.N) and bills itself as the world's leading provider of software for managing supply chains and customer relations.

"High wages and weak growth in its home market Germany are, in my view, the main triggers for the bad performance," said Stephan Thomas, fund manager at Frankfurt Trust.

"Hopes had been high after positive newsflow from the U.S. tech sector and I think many investors had raised their estimates for SAP. Therefore, I don't see today's results as a big surprise. I've been underweight on SAP for a long time, and it'll stay that way," he added.

Operating profit in the first three months of the year rose by 26 percent to 779 million euros ($1.14 billion) and its key software and software-related service revenue rose 20 percent to 2.38 billion euros, SAP said on Thursday. <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ For Reuters Insider TV's interview with SAP Co-CEO Jim Hagemann Snabe on: link.reuters.com/fyx29r ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>

The company reiterated key non-IFRS software and software-related service (SSRS) revenue, which includes revenue from license sales and maintenance services, was expected to rise 10-14 percent this year at constant currencies.

It also reiterated full year operating profit is expected to be in a range of 4.45-4.65 billion euros and operating margin was expected to rise by 0.5-1.0 percentage points.

SAP bases its key outlook figures on non-international financial reporting standards, which exclude acquisition-related charges for example, because, SAP says, it allows investors a better comparison of year-on-year operating performance.

Co-CEO Jim Hagemann Snabe told Reuters Insider that the company was focused on organic growth not acquisiitons and that its outlook was backed by a strong pipeline and solid tech spending.

According to database StarMine, SAP trades at 16.9 times estimated 12-month forward earnings, a premium to rival Oracle, which is valued at 14.7 times.

Microsoft (MSFT.O) is also scheduled to publish earnings on Thursday. ($1=.6817 Euro) (Additional reporting by Christoph Steitz in Frankfurt and Dominic Lau in London; editing by Alexander Smith)

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