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SAP: 4Q Sales Better Than Expected But Margins Slide

SAP on Monday told shareholders to expect fourth-quarter sales of roughly $4.9 billion, up 10 percent from the year-ago quarter and almost $200 million more than analysts had originally predicted. The German software giant will release its full fourth-quarter and fiscal 2007 results on January 30.

Investors responded by pushing SAP shares up $2.02, or 4 percent, to $50.03 a share in Monday trading.

The company added that fourth-quarter software and services-related sales rose to more than $3.7 billion, up from 14 percent from the same period last year. It did not provide any details on net earnings or earnings per share for the quarter.

"SAP turned in another year of very strong gains," the company said in a release. "The strong performance in the fourth quarter represents the 16th-consecutive quarter of double-digit growth in software and software-related service revenues at constant currencies. It resulted from a well-balanced contribution from all regions and solid performances from SAP's traditional as well as its focus industries."

This apparent bit of good news comes on the same day that fellow tech bellwether IBM announced stellar preliminary earnings estimates for its fourth quarter. Big Blue said it expects to earn $2.80 a share in the fourth quarter—well above the $2.60 a share most analysts were expecting—on sales of $28.9 billion. Analysts were looking for total sales of roughly $27.8 billion in the quarter.

IBM will deliver its full fourth-quarter and fiscal 2007 results on Thursday. The company said it decided to release preliminary results to assuage fears among investors that the sluggish U.S. economy was eroded sales and earnings not only in the U.S. but overseas.

"Given the economic climate in which there's been a good deal of speculation about market conditions and the performance of technology companies, IBM wanted to deliver this information to investors," an IBM spokesman told Reuters.

SAP, which narrowly topped analyst estimates in its third quarter, said it would provide its outlook for 2008 when it releases its full results at month's end.

While investor spirits were buoyed, SAP did provide some less-than-stellar news Monday when it confirmed that operating margins for fiscal 2007 will check in around 26.5 percent, down from 27.3 percent in 2006. In its release, SAP said the dip in operating margins was mainly a product of "accelerated investments" in Business ByDesign, the company's first on-demand offering for the SMB market.

Peter Goldmacher, an analyst at Cowen & Co., issued a research report Monday morning reiterating his "underperform" rating on SAP shares.

"Despite growth in revenues, the estimated contraction in [earnings per share] indicates that earnings were pressured by the company's investment in the mid-market," he wrote in the research note. "The company reported that its full year fiscal 2007 operating margins were negatively impacted 120 basis points by its investments in Business ByDesign."

In October, company reaffirmed its plan to grow its customer base to more than 100,000 clients by 2010 through aggressively targeting the SMB market and invest more than $560 million in the coming year to market and develop Business By Design.