A cost-cutting story

30 January 2003

SAP s margins look more sustainable than Nokia s. But its rating 27 times clean 2003 earnings is too rich for a costcutting story. The German software giant is compensating investors for an absence of revenue growth with disciplined cost cutting.

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SAP, the German software group, said its sales rose by 1% in 2002. Its operating margin, before stockbased compensation programs and charges for material acquisitions, increased by nearly three percentage points to 22.7%.

For the fourth quarter, sales fell by 2% yearonyear, in line with expectations. However, operating expenses fell by 14%, such that SAP reported a surprisingly high margin of 34%.

SAP claimed its share of the enterprise software market, consisting of itself and five main peers, rose to 50% in 2002 from 41% the year before. The calculation is based on software licence sales.

The company expects to gain more market share in 2003. Assuming modest revenue growth, SAP expects to increase its 2003 operating margin, excluding charges, by around 1 percentage point compared to 2002. Earnings per share for 2003, excluding charges, are expected to be in the range of E3.45 per share to E3.60 per share.

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