SAP cuts investment in ByDesign as net income falls

Looking ahead, SAP expects full-year software and software-related service revenue to increase by between 24 percent and 27 percent at constant exchange rates. Around half of that growth will come from SAP's ongoing business, and half from Business Objects, it said.

Analysts see SAP's revenue growing at around 26.5 percent during the current quarter, but slipping back in the third quarter to around 16 percent for a full-year average of 26.9 percent, according to the Thomson poll.

SAP raised its operating margin expectations for the full year, to between 28.5 percent and 29 percent at constant exchange rates, compared to 27.3 percent in 2007. It had previously indicated a range of 27.5 percent to 28 percent. The expected improvement will come from the reduction in SAP's investment in Business ByDesign.

The company plans to maximize the return on its investment to date in Business ByDesign by reusing its innovations and technologies in existing products, a move it expects will contribute significantly to revenue in 2010.

Business ByDesign was the brainchild of board member Peter Zencke, whom SAP recently revealed will leave the board at the end of the year. Zencke will serve in a consulting role on Business ByDesign.

Zencke's departure was not precipitated by the apparent problems SAP is having with Business ByDesign, said Bill McDermott, a board member and head of SAP's Americas and Asia Pacific Japan regions, in an interview Wednesday: "I wouldn't couple those two things."

"There's tremendous bench strength in the development arm of SAP," McDermott asserted, while adding, "[Zencke] certainly has SAP in his veins. He's not going away."

SAP is not concerned that delaying Business ByDesign's full rollout will impact its ability to command market share in the on-demand ERP space, he said. It constitutes a "killer app" and "no other company in the world has the development capacity to put [a comparable product] together in that window of time," he said.

Ray Wang, an analyst with Forrester Research, said via e-mail that SAP's decision to pare down expectations for Business ByDesign "reflects the realization that this is a hard market to scale and sell to."

SAP's earnings news and the Business ByDesign announcement come on the eve of its SAPPHIRE conference, set to begin in Orlando on May 4.