I had no idea SAP (NYSE: SAP ) CEO Henning Kagermann was a Jedi.
But when, in yesterday's earnings report, he characterized 2007 as a "good year" for his company and said his team delivered an "outstanding performance," investors fell for the mind trick. Forget that profits were down 6% in the fourth quarter. Nothing to see here, Mr. and Mrs. Oddlot. Buy, you must.
Or should you? Good news first: Revenue was up 10% in Q4 and 9% for the full year. And executives say that SAP's share of the Core Enterprise Applications market grew to 28.4% in 2007, up from 26.9% for the trailing 12 months ended in September.
Even if those market-share estimates are correct, SAP paid dearly for growth. Operating margin declined from 27.4% in 2006 to 26.7% last year. Fourth-quarter operating margin dipped from 36.9% to -- gulp -- 34.3%.
To be fair, SAP said in its press release that operating margin will improve slightly -- 10 to 70 basis points -- after excluding charges from its $6.8 billion acquisition of Business Objects (Nasdaq: BOBJ ) . My problem, of course, is that deals this size should add a lot more than incremental value.
Perhaps it will as time passes. Business Objects is no small fry, and SAP's primary rival (Oracle) isn't exactly a heavyweight in the increasingly important business-intelligence business.
For now, though, SAP is in the middle of a transition that, apparently, has its salespeople offering discounts on its core business software as its techies dabble with the software-as-a service concept in an effort to reignite hypergrowth.
"Outstanding performance"? Learn the ways of the Force, you must, Mr. Kagermann.
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