SAP SE (SAP) 2004 Q1 法說會逐字稿

Good day everyone and welcome to SAP's 2004 Q1 Results conference call.

This call is being recorded.

Today's call will be hosted by Henning Kagermann and Werner Brandt.

I will now turn the conference over to Stefan Gruber.

Please go ahead sir.

Good morning or good afternoon.

This is Stefan Gruber Head of Investor Relations SAP.

Thank you for joining us to discuss SAP's first quarter 2004 results.

I am joined here in Walldorf by Henning Kagermann, Werner Brandt and Leo Apotheker.

Before we begin the call I will make a few remarks about forward looking statements.

Then Werner will discuss the Q1 financials in detail and Henning will then provide some further in-depth commentary on the quarter's performance and SAP's product successes.

Any statements made during this call that are not historical facts are forward-looking statements as defined in the US Private Securities Litigation and Reform Act of 1995.

Words, such as anticipate, believe, estimate, expect, forecast, intend, may, plan, project, predict, should and will and similar expressions as they relate to SAP are intended to identify such forward-looking statements.

SAP undertakes no obligation to publicly update or revise any forward-looking statements.

All forward-looking statements are subject to various risks and uncertainties that could cause actual results to differ materially from expectations.

The factors that could affect SAP's future financial results are discussed more fully in SAP's filings with the US Securities & Exchange Commission, the SEC, including SAP's most recent Annual Report on form 20-F.

Participants are cautioned not to place undue reliance on these forward-looking statements, which speak only as of their date.

With that I'd like to hand it over to Werner Brandt, Chief Financial Officer of SAP.

Thank you Stefan.

Welcome everyone and thank you for joining us today.

As you have seen already SAP had a good first quarter in 2004.

While corporate [indiscernible] discipline is still vigilant, we have seen renewed customer interest in software investments, especially in the United States.

Software revenue for the first quarter of 2004 was up 5% or €370m compared to €352m for the first quarter of 2003.

Even with the negative impact of the strong euro we recorded growth in software revenues on the euro basis, for the first time since ten quarters in a row.

On a constant currency basis, software revenues were up 11% year over year.

As you know Q1 is typically not one of our strongest quarters of the year.

We had a few larger deals, but the strength of the quarter was largely due to the high volume of deals.

Henning will talk about the customer buying patterns in more detail later.

Total revenues for Q1 were €1.6b compared to €1.5b reported in the first quarter of 2003.

On a constant currency basis total revenues were up 8% year over year.

Maintenance revenues were €6.66m for the quarter.

For the most part maintenance revenues came in as expected, as we witnessed a strong renewal rate of our maintenance contracts, demonstrated by a 10% increase in maintenance revenues compared to the first quarter of 2003.

Sequentially we are slightly down compared to the fourth quarter, similar to what we saw in 2003.

But excluding positive effects in the fourth quarter of 2003 and differences, due to exchange rate movements, we are in line with our expectations.

In addition as in 2003, we carefully reviewed all of our account receivables in regards to collect ability and we have set up sales [allowance] accordingly on these maintenance receivables.

Consulting revenues were €442m for the first quarter of 2004, compared to €476m during the first quarter of 2003.

Approximately two thirds of the decline in consulting revenues was the result of the currency impact.

Henning will provide more details on our consulting business later on.

Reported expenses were flat year over year.

However, excluding the currency impact expenses were €58m higher than in the first quarter of 2003.

On a proforma basis the increase was [€55m].

The majority of the increase came from personnel costs and marketing expenses.

The increase in personnel expenses was the result of higher headcount.

Since the first quarter of 2003 we increased our headcount by more than 1500 people, of which 855 were in R&D and another 205 in sales and marketing.

As we stated in the previous quarter, we plan to invest more in sales and marketing and research and development in 2004.

Appropriately these expenses were higher in this year's first quarter compared to the same quarter last year.

Compared to the fourth quarter of 2003, headcount is up by 556 employees.

We have already hired an additional, roughly 350 employees in the second quarter.

As we said earlier, this year, we expect to hire a total of approximately 1500 employees in 2004.

Operating income increased 12% to €333m in the first quarter.

Proforma operating income, which excludes stock based compensation expenses and acquisition related charges, increased 9% up to €332m.

The operating margin for the first quarter was up 1.8 percentage points, up to 21.4% and the proforma operating margin which excludes stock based compensation expenses and acquisition related charges, was up 1.3 percentage points up to 21.3%.

The improvements in the operating margin was the result of two things.

First a more favorable revenue mix as we had a greater percentage of our revenues coming from licenses and maintenance compared to last year.

Second, less third party services in consulting.

Finance income increased €23m in the first quarter of 2004, compared to the same period in 2003.

The main reason for the increase were first an increase in interest income and second a €9m decrease in impairment related charges.

Third no impact from the [indiscernible] and fourth the one-time effect from the sale of marketable securities in minority investments.

Net income rose 23% to €229m in Q1 and proforma net income which excludes stock based compensation expenses, acquisition related charges and impairment related charges, increased 15% to €229m.

EPS for the first quarter was €0.74, which was an increase of 23% from €0.60 reported for the first quarter of 2003.

Proforma EPS which excludes stock based compensation expenses, acquisition related charges and impairment related charges, was €0.74 compared to €0.64 last year.

Our effective tax rate for the quarter was 37%, down from 40% in Q1 2003.

Prior year first quarter tax rate was impacted by non-tax deductible write-downs of minority investments.

For the full year of 2004 we anticipate a tax rate of around 37%.

In March we announced the intention to acquire the remaining outstanding shares of our subsidiary, SAP [I-System Integrations], which is a publicly traded software consulting company in which SAP AG currently own more than 75%.

The acquisition will help to strengthen SAP's business consulting and process integration expertise and increase it's global IT premium consulting capability.

Cash flow from continuous operations for the first quarter was €859m.

With capital expenditure of €35m, free cash flow was €824m.

At the end of the first quarter we had liquid assets totaling €2.9b. [Days without] spending stood at 74 days at the end of the quarter, which is an improvement of 2 days, compared to the fourth quarter of 2003.

It is 10 days better compared to the first quarter of 2003.

SAP continues to focus on improving deals [over] quarter over quarter.

Deferred income was up €34m in the first quarter of 2004 compared to the first quarter of 2003.

Considering the currency impact on periodic maintenance, deferred income came in as expected.

Periodic maintenance was higher year over year including and excluding the currency impact.

While non-standard maintenance was lower, which is positive for SAP, as I explained last time.

With that I would like to pass the call over to Henning.

Thank you Werner.

As Werner mentioned we posted software revenues of €370m.

However, as you know, we are impacted by the currency head winds of the strong euro versus the dollar.

Last year at the end of the first quarter, the dollar/euro exchange rate was around $1.09 to €1 compared to approximately $1.22 to €1 in 2004.

That said, if we were a US company reporting in US dollars therefore benefiting from the exchange rate, like our competitors, we would have reported software revenues of around $450m, which would represent 18% growth year over year.

Customer buying activity is picking up.

We believe that the momentum we are seeing should bode well for the remainder of 2004.

For a start average order value with new customers was higher than with our installed base for the first time in four quarters.

A clear indication that companies are back and willing to spend, [indiscernible] their software needs and more and more companies are starting to invest for growth.

That's why we are also seeing the slight increase in deals greater than €5m, for which I will give some metrics later on.

Customers continue to demand better and quicker results with a low TCO.

SAP has a proven track record of meeting these demands.

We believe that the positive trends that we have seen in Q1 and that our healthy pipeline supports our full year guidance of around 10% of the revenue growth. 1 percentage point [increasing] in the proforma operating margin and proforma earnings per share in the range of €4.20 to €4.07.

Our guidance is based on an assumed US dollar to euro exchange rate of $1.25 to €1.

The guidance is also based on our plans to continue to invest in sales and marketing and of course R&D, to help us meet our goals.

Changes in the overall environment mean that COO's are buying differently than before.

The average deal size is still down, but less than the amount we experienced in 2003.

The additional volume in the first quarter more than compensates for this.

In the first quarter volumes from our direct sales force increased 9% compared to the first quarter of last year.

The number of deals closed by the indirect sales channels was even stronger at 47%.

We expect to see a continuing stabilization in deal sizes for the rest of 2004.

Deals greater than €5m accounted for 19% of order entry in the first quarter, compared to 15% in the same quarter last year.

Deals less than €1m accounted for 48% of order entry compared to 45% for the first quarter of 2003.

What we are seeing is some distinction in the way different customers are spending.

Installed bases are still buying in smaller increments, gradually building functionality and upgrading their existing software.

However, new customers, who over the past two years have been restricted by tight budgets, seem to have been given the green light to address IT needs and are willing to spend more on software.

For example new customers represented 33% of order entry, which was the highest that we have seen in the past eight quarters.

The average deal size from new customers was higher than the average deal size from existing customers.

Another [good] point, of the change in customer buying behavior is that we are continuing to see more revenues coming from different software purchasers, rather than from pure migration to newer versions of our software.

This also indicates that we are successfully executing on our strategy of gaining greater share of our customer software spend in dollars, as what we refer to as share [indiscernible].

Let me touch on one last item as it pertains to the environment.

One question that always seems to arise from the financial community involves pricing.

The unique competitive dynamics we are currently experiencing have continued to impact pricing and not surprisingly some of our peers continue to discount heavily to secure the place in the mix.

Price pressure is stronger now than it was one year ago.

But the strength of our offering means that we compete on functionality and quality, not on price.

We believe that companies come to us for our superior solutions and see the [indiscernible] in our offering.

We are not immune from the discounting in the market.

At times we do need to discount beyond our normal levels to better compete when it makes strategic sense.

Often though we would rather walk away from a deal rather than discounting the software too aggressively.

In the first quarter we continued to gain global market share against Oracle, Peoplesoft, Siebel and i2.

However, from this quarter forward we changed the peer group in which we measure our market share, to compare us against the next four largest competitors.

Therefore i2 was replaced with Microsoft Business Solutions.

Our global market share measured against the new peer group stood at 54% at the end of the first quarter, measured on a rolling four quarter basis.

Based on the peer group used in 2003, as [it is] market share, would have been 60% at the end of the first quarter.

While software revenues were higher and maintenance revenues came in as expected, service revenues were down 7% year over year.

This is not unexpected as service revenues in SAP follow software revenues, which are now just starting to recover, and we used less third party consulting.

Also there was a currency effect as Werner mentioned, and pricing pressure in the market remains.

We continue to concentrate on delivering premium services, including project management, quality assurance and ramp up of new products.

We are also focusing on knowledge transfer to make sure that the lessons we learn about our methodology become part of our products and services.

We don't want to enter the mass market in consulting, but instead we continue to actively engage our partners.

This is the right strategy for us, since top line growth is not our focus in consulting.

Profitability is where we concentrate our efforts and we kept our profitability in consulting intact.

While it is still a tough market for services, we do expect our services business to recover in 2004.

Now let's take a lot at the regions performance.

As expected the Americas, in particular the US, was the driver of software growth in the first quarter.

Software revenues in the US were up 45% to €103m.

At constant currencies software revenues in the US grew 65%.

The excellent performance was helped by the strong volume growth and continued pick up in the US economy and some larger deals.

We out paced our US based competitors, beating them in their home market.

Our realignment in the US in 2003 and our concerted effort to reposition SAP there, has really taken [note].

Now that most of the changes are in place, we expect the US to remain the growth driver for SAP for the remainder of 2004.

Excluding Japan, Asia Pacific was flat year over year.

We continued to see good results from some of the emerging markets, like China and India.

Japan, which was down 37% or 34% at constant currencies, continued to represent some challenges due to a difficult economy and the realignment of our sales force taking place there.

As we mentioned last quarter, Japan's sales force had previously been structured to close large deals, which are becoming [decreasingly] common in that region.

Therefore we are in the process of realigning the sales force to help us close a higher volume of smaller deals as we successfully do in other regions.

EMEA software revenues fell 4% to €197m.

At constant currencies software revenues declined 3%.

Trailing the recovery in the US, Europe is still a somewhat difficult environment.

Germany's software revenues were relatively flat compared to last year.

This is not typical of Germany, in which the first quarter is not usually the strongest quarter for the region.

One reason is that we have a big install base in Germany.

Typically many of our large install base customers tend to make decisions as the year progresses.

Let me now talk about our solution reporting.

In the first quarter we slightly adjusted the method in which we report our solution revenues.

With the introduction of NetWeaver as a fully integrated platform delivered as one package solution, there is no longer the need to separately break out some of the technology components as we have done in the past, because we are delivering NetWeaver with most of our applications.

Therefore, you will no longer see a separate category of [indiscernible] DI, SRM and markets.

We are now just reporting SRM separately along with the break out of our other solutions as reported in the past.

We saw good traction from ERP in the first quarter, partly due to the ramp up of mySAP ERP in 2003, which is our new successor product to R/3.

We are also seeing more companies with renewed interest in ERP functionality to help drive more efficiencies into their businesses.

ERP revenues were €156m and represented 42% of the revenues.

CRM revenues were €71m and represented 19% of software revenues.

Supply Chain Management revenues were €81m and represented 22% of software revenues, while both CRM and SCM as a percentage of software revenues were slightly down year over year, we still remain the clear leader in each solution segment when you measure SAP against its next four largest competitors on a rolling four quarter basis.

Looking ahead, the key to our success is our constant rise to innovate and enhance our products to stay ahead of the competition and even our customers.

Our focus in 2004 and SAP NetWeaver, mySAP ERP, mySAP CRM our industry solutions and solutions for small and mid sized business that drive demand, and meet the industry, setting the standard for the competition to follow.

NetWeaver is the basis of much of our potential growth at SAP.

We are excited that all that it has to offer.

With NetWeaver SAP is the only business application member that can deliver a full integration and application platform where the distinction between infrastructure and applications no longer [exist].

In March we successfully launched NetWeaver 2004.

The first synchronized release of all the technological components.

We are now delivering NetWeaver as a fully integrated technology platform in one packaged solution.

One of the most important announcements we made in 2004, was to declare mySAP ERP as the successor product last week.

This next generation ERP is designed to help customers that use TCO and achieve faster return of investment by laying a flexible and organize the foundation to enable business profit innovation.

We have a clear maintenance strategy in place to help our customers smoothly transition from SAP R/3 to mySAP ERP and therefore improve their productivity.

The new maintenance strategy gives customers a more structured maintenance plan.

The option of extended maintenance on their SAP applications as well as flexibility in upgrading to the newest version of mySAP ERP.

This announcement has been well received by our customers.

Our unparalleled commitment of developing software for different industry groups puts us ahead of the curve in terms of delivering to customers' industry specific solutions.

We believe that retail, banking, public sector and hi-tech will be the main growth verticals for us in 2004.

We have already seen strong performances from some of these key verticals with the first quarter, as well as chemicals and pharmaceuticals.

We will continue to move deeper into these and other existing verticals, to capture additional demand and capitalize on the need for software tailored to the specific needs of particular industries.

We continue to focus on the mid market, as we see excellent opportunities there.

We are in the process of defining the mid market segment, based on industry analyst recommendations and we expect the definition to be based on a combination of customer headcount and customer revenues of $50m to $500m and $500m to $1b.

We expect to report this market data beginning in the second quarter.

In the lower end of the mid market, where we offer our SMB solutions of Business One and All-in-Ones, with the indirect channel we continue to see good results.

In the first quarter we signed 421 Business One customers, and now have a total of nearly 3000 customers.

For All-in-One we signed 234 customers in the first quarter and now have a total of nearly 5000 customers.

Our partner [indiscernibel] grew as well.

We currently have about 530 Business One partners and about 430 All-in-One partners.

Many of our SMB customers are new customers who recognize the efficiencies and cost savings that they can achieve by running SAP software.

While an increasing number of SMB customers operating affiliate of existing customers are reaping the benefits of our unique ability to integrate entire business landscapes of small, mid sized and large companies.

To summarize, our strategy has not changed since we last met at our January 2004 analyst conference in Frankfurt. 2004 will be an important year for SAP.

Confidence is improving and we see growth coming back.

With that, I would like to open the call to your questions.

Thank you. [Operator Instructions] Our first question comes from Ross MacMillan of Morgan Stanley.

Thanks.

The question was really on Europe.

Obviously Europe has been a little bit slower at the start of the year.

Could you just give us an update on - perhaps a little bit of color within Europe - on France specifically.

Is France still lagging the rest of Europe?

Then on Germany, do we expect to see Germany begin to come back into positive growth territory as early as the second quarter?

Or is it going to be a more gradual process?

Thanks.

Hi Ross, this is Leo.

Thank you for your question.

As you know we made some changes in our French management team and we have started to see the first results of the change.

The French business actually grew in the first quarter, slightly, but still a growth.

We hope that we can continue that trend going forward as well.

So the first changes are actually starting to produce some traction.

Another region in Europe where we made some changes in the past are also starting to produce some positive results, in orders.

Germany in fact, in all fairness, had a flat quarter, which given the circumstances is a very good result.

We have to remember that the vast majority of our install base in Germany proceeds with important acquisitions of software usually at the end of the year.

So Q1 is usually a pretty lost start to gear the machine up.

I do not expect any material changes in the German business as we are going forward.

It should be comparable to what we have seen previously as well from a business prospectus.

Thanks.

Next question please.

Could we hear the next question please?

[Operator Instructions] Our next question comes from John Segridge(ph) with JP Morgan.

Hi guys.

Congratulations on the good quarter.

Henning if we look at the business, and considering how strong the results have been and how strong the volume growth is tracking.

Is it fair to assume that the ASP might be more like flat to up by the second half?

Or maybe even do we reach a parity in the second quarter?

Maybe can you also just give us an idea of what you think the effect of the launch of NetWeaver is going to have on, maybe that average deal size?

Or even better, the new customer deal size, whether it is a net positive [full] effect?

You are right.

The decline was very low.

So, there is a chance that we - let's say reach the bottom for average deal size in the second quarter.

I don't know exactly, but there is a chance, put it this way.

But what I definitely would expect that we see at the end of the year, I think that we reached the lowest level and might see a stabilization or a slight increase.

NetWeaver has an impact on the tendency of clients to go from R/3 to mySAP ERP.

I think that is obvious, you have seen the change to the reporting on our solutions.

We did this because ecommerce is not that a hot topic any longer, where we bundled, let's say market supporters etcetera.

Now, as you know, we deliver all our solutions from 2004 on, on NetWeaver.

We are not delivering, for example, reports, and reporting separately our business [intelligence] separately.

We deliver NetWeaver and it is the customers using [support] alone who pay for the [support] alone.

But, nevertheless in the past many, many, many clients that bought Business Warehouse support [indiscernible] things in addition to R/3, bought it in addition to R/3.

If it was a new client, normally you have technology and application.

Therefore you will see in the future not so much stand alone business warehouse deals or stand alone NetWeaver deals, you will see I believe more [indiscernible] growth to mySAP ERP because he gets the ERP functionality, he gets improved ERP functionality and he gets all the benefits of NetWeaver.

So, I think NetWeaver will drive, from my point of view, amongst all other things, the migration from R/3 to mySAP ERP.

Great.

Okay, maybe I could just follow-up one more on the new customer deals.

You said that for the first time we have now seen new customer deal size exceed the existing customer deal size.

Do you think that trend will continue, and maybe just give us a sense of relatively how much bigger it is?

Well, we think it will continue.

It's I would say roughly 10 percentage points or less higher.

It is not such a big difference.

But we mentioned it because this is a shift in trends.

In the past it was for some while always lower.

The reasons of this, it will continue, and we believe it is our outline, that behind people view investment into our applications as a strategic investment.

When I speak to CEO's these days it is not about gaining more productivity or saving costs, it is really about getting competitive advantage.

It is really about getting growth opportunities, not falling behind the competition.

You know if you are a new customer it makes no sense, let's say, to start very, very small because then you don't, let's say, these competitive advantages.

Whereas, on the other side, if you look to our install base, we all know that our share of orders is improving and because the software is so flexible, it is now much easier for our clients to upgrade and extend the footprint incrementally.

We think that's something we were driving for now for many years, is this flexibility, and customers take the opportunity.

Great, thank you very much.

Next question please.

Our next question comes from Kevin Ashton of Deutsche Bank.

Good afternoon gentlemen.

I think I'd add my congratulations as well to you and the US team on that performance.

If I may, just a couple of quick questions.

On pricing, what proportion of your business are you finding that you're having to discount on?

Could you give us an indication of the sort of discounts that you'd be talking about on average?

Then I have a follow-up on the hiring, if I may.

Hi Kevin.

We are still in an environment where the competitive situation is such that higher discounts are being proposed by the competition to stay in the mix, or to stay in the game.

It is usually in areas that are more general, available things that is back - classical back end systems where the pricing discount proposals are probably the most aggressive.

We are quite able to resist it.

If I look back over the last three quarters, I actually can start to see a trend where we give less discounts than before.

You will understand that I can't give you a percentage of the discounts that we give.

You wanted to have a question around hiring?

Yes, if I could.

So, 560 hires and obviously 1500 for the full year.

It obviously looks like you're ahead of the game there.

I just wanted to confirm that, rather than seeing the 1500 expand.

Also, I note that it's rather in service support and R&D, rather than sales and marketing.

I wondered if sales and marketing is the next area where you will be hiring or whether it will be the same pattern as we've just seen?

Kevin it's Henning.

In sales and marketing we have hired and Leo is hiring, I would say, in line with the needs of the market.

In research and development we have also hired a little bit.

We will hire more.

This will seem more in support, I think has to do with the reorganization we had last year.

Therefore let's say we finished this reorganization at the beginning of the year.

So, what we will see going forward is, let's say, a hiring in the fields according to business needs.

But you will also see more hiring in research and development.

We do want to do hiring in R&D smarter than in the past.

You know that off-shoring isn't our topic.

There are opportunities in local countries.

In R&D we want to make sure that we are not hiring all the people here in Walldorf.

Therefore we have a clear let] strategy.

There are, or has been in the past, some restrictions developed to the number of people we could ramp up for example in EMEA, there is a limitation.

We will look in the future more for local countries.

You will see that once we have removed this bottleneck, more hiring in R&D in the future.

Kevin it's Werner here.

Kevin the numbers I mentioned [with] the comparison between the first quarter of 2003 with the first quarter of 2004, also the breakdown in R&D and sales and marketing.

Thank you.

Could we get the next question please.

Our next question comes from Peter Coleman of Schwab SoundView.

Thanks gentlemen.

Just a - I guess a little clarification on the guidance.

You did indicate that your expectation, this is the US, will continue to be the main driver for 2004.

Could you maybe give an indication of sort of what your expectations as related to your guidance are for Europe and the other regions?

No, sorry.

You know that we are never making guidance according to regions.

This was just to give you a flavor that we think the economy and the performance of our US business both together are very strong.

There is no indication or reason to believe that that will go down.

Okay.

So, how is it, if you look at just sort of some of the pipeline activity in the European region, maybe if you could point out a couple of the positives if there are any, as it relates to industry or your forward feeling?

This is Leo.

I can just reconfirm what we said already in January, that we have good reasons to believe that the business in Europe will gradually improve, very, very slowly.

We do believe that the second half of the year will show an improvement over the first half of the year.

We have enough pipeline indication to confirm that statement once again.

Okay, great.

Then just finally, given that information, you don't foresee any additional or new changes as it relates to the organization in the EMEA region?

Just at this point it's doing a little bit of adjustment in Japan to kind of marry some of the higher volume activity you've been able to put up the other regions.

Is that correct?

That is correct.

We are basically working to make sure that our organization in Japan aligns itself to the new market conditions.

By the way that is just a reorganization or a shift in resources, not more and not less.

Maybe just to anticipate a question, or a further question that might come up on Japan.

Just to give everyone on this call a sense of the business conditions in Japan.

If I compare our activity with the activity or the business activity of our competitor, a US based software company, starting with an O. We basically do, over the last three quarters, because that is a good basis of comparison.

We do about ten times more licenses in Japan than our next competitor.

Just to keep everything into proportion.

Thank you.

Next question please.

Our next question comes from Charlie DeBona(ph) with Stanford Bernstein.

Hi, I have a couple of questions about the sort of composition of revenues among the product categories.

Last year end you talked about some programs to sort of encourage upgrading from RF3 to mySAP and I am wondering what impact that's having on your ERP share?

Then if you could also give some color on new customers coming in.

Are you seeing any different patterns there, of their coming in for ERP versus some of the other product categories and what impact NetWeaver might have on those new sales as they come in?

If we look to ERP, you are right.

The reason or part of the reason that ERP was quite strong has to do with the new offering around ERP.

We have not only combined the proven functionality to increase productivity, which customers know from R/3, with the flexibility of the NetWeaver platform.

But we have also incorporated in this next generation ERP functionality which we believe is now, let's say, standard for a modern ERP system, which was viewed four or five years ago as something innovative like, let's say, E procurement or whatever.

Therefore I believe many customers, especially from the new customers are attracted by these products.

So, I would not see this as a revising of ERP in the market in general, but more as I would say, competitive advantage of our ERP product.

In terms of the mix, from a regional basis, I can give you some things, and maybe Leo can dig into some of the deals we closed.

As always I think, if you look to Europe, to the Americas and to Asia, then it is not a surprise that in Asia the supply chain there is strong.

But this time ERP was stronger.

If you look to the Americas, it is not a surprise CRM is very strong.

But again, ERP was close, was as strong as CRM.

If you look to Europe I think it is a mixed bag.

Some of the deals, may be Leo has a few deals, where we can show you what we are selling.

Yes.

Indeed, Henning is absolutely correct.

It is very much different per region.

It is also a clear indication of the maturity of the different markets.

But if I look in particular to the US, where there was quite a lot of new customers, typically in the quarter.

Basically we have managed to win a certain number of very important deals that were strategically important for us.

Some of which were essentially driven by CRM.

As an example I think we'll mention a company called [Forestat] a big pharma company, where we were competing on a head to head situation with a best of breed CRM vendor.

But what usually happens in these situations is that because the environment has slightly improved from a global economic environment.

The decision has been usually made to go for a more substantial investment and not just concentrate on solving a particular base point on its CRM, also confuses the ERP.

So, I think you need to distinguish in these cases between what was driving the process and what ends up being sold, and what ends up being sold with new customers.

That is the good news in this quarter, is a renewed interest in expanding the footprint and not just trying to fix in the short term a particular pin-point.

With you sort of propagating NetWeaver into your install base, are you seeing therefore a sort of a higher mix on some of the non-ERP features, as people add those on using the NetWeaver platform?

No, there's definitely two.

You can see that if you look across the deals.

There are some deals which are, let's say ERP deals for example, but if you look into the details what customers really bought, and you see that it is very often the partners that describe the different end users.

That the platform indeed is driving additional user's utilization and expanding the footprint in an installed base, no doubt.

Thanks very much.

Thank you.

Next question please.

Our next question comes from Michael Schott(ph) of Chevereux.

That's great, thanks.

I have two questions if I may.

The first one, in terms of the strong US business, can you give us more color on the large deals that impacted the quarter.

You were just talking about one of them.

Secondly why the impact of the US dollar was round 20% and the currency impact was about 22%, which could be an indication that the major part of the deals were signed in February.

Let's start with the deals and I think we can look a little bit to our currency exchange rate table.

Leo mentioned one, there are others.

If for example I look to some of the deals that were closed in the US.

Some of the large ones are existing clients.

For example I could also mention Chevron, a client we have known for a long time.

The first large [indiscernible] client in the US, and here it was I think that very important just to [indiscernible] completing [indiscernible] from exploration down, let's say to the petrol stations.

Over time, we were able to sell more and more deals to Chevron.

Now I think we have really made a large deal there.

The other areas where, for example, we sell, let's say in addition to ERP, in the US CRM's, so I was surprised.

But that just might be a quarterly impact that PLM was comparably strong in the first quarter.

So, it seems to be that we have also, let's say, attracted clients as a combination of ERP and CRM.

So, all over all, it's a mix in it.

As we indicated in most of the large deals.

It is not one component it is the suite.

That was our strategy from the beginning.

We said we wanted to place best of breed, by best of suite.

Now that we have proven that we are the number one in all of the categories in which we sell in the suite, I think it is extremely attractive for our clients to go for a suite.

It might be a large one in the US.

The Hopkins University we can mention, where you know it is not only hi-tech, it's also higher education.

It's also health care.

This was something where we also more or less covered the complete business of this entity.

Regarding the currency, I think if you look to the average exchange rate for the quarter over quarter, then we have there a decrease in the currency of 14%.

I think it is more important to look to the sales in the United States in terms of US dollars.

There we increased deals quarter over quarter by 65%.

Okay.

Maybe a follow-up.

Regarding the deals data.

Could you also give us something, what you gave us on a global base, on a US base.

Like the deals above €5m and deals above €1m in the US?

No, we only do it globally, Michael.

Okay.

Thank you.

Next we'll hear from Brent Phil(ph) with Prudential Securities.

Thanks.

I was wondering if you had seen any discernible spending patterns split between large enterprise and the mid market.

What sector you saw come back first and what your growth expectations of a 10% license, where you're putting most of the emphasis this year?

Let's start first with the sectors that was one of the questions.

As I said in my speech, if I look to the first quarter, then the largest increase - but that's only a quarter, so we should always be careful - was banking, public sector, retail and chem/pharm.

We will see if that is the same over this year.

[indiscernible] expect that public sector will be strong if we look to the pipeline and because we have an initiative behind, I think banking should be strong as well.

Retail we have something we want to do, so, therefore I expect here the same.

With other verticals let's wait.

It is a little too early to speculate about the other verticals.

If you could just talk about the large enterprise versus the mid market.

What you've seen in terms of those areas coming back.

Well, across the board I think we can probably see some activity in both.

Clearly from a volume perspective, we've seen much more activity from the lower end of the market, where we had a very good quarter actually.

But it is also reassuring to see that we've started to see some renewed activity at least in some markets, not in all, but in some markets.

We have started to see some renewed activity as well in the top end of the market.

So, I don't think we can really make a clear distinction at this moment in time to say which one is going to continue to go faster forward than the other.

Also, our market penetration in the different segments is completely different.

So, therefore from our perspective the activities have to be different.

But I believe that going forward we will see business interest coming from the entire spectrum of the segments from the low end all the way up to the top end.

A quick follow-up.

How long would you expect the Japan realignment to take before you feel it is backing up at pace E1?

I think we will probably have to spend the year making sure that we are well aligned in Japan.

So, that we can cover the markets - or the new market expectations in the appropriate manner.

Thanks.

Thank you.

Next question please.

Next we'll hear from Raynial Lensheu(ph) with Merrill Lynch.

A quick question on pricing.

Henning could you just talk me through - you've talked a lot about pricing pressure.

But I remember that around 70% of your license revenue is coming from your install base.

Are you competing on price there as well, or is it just really only the 30% that you sell to new customers?

No, it's also the install base I think.

I mentioned this because I think you want to have some indication of, let's say, what's going on in the market.

I just wanted to make sure that you know that the competitiveness is as strong as it was.

People are still looking very often for, let's say, the cheapest buy.

Yes, quality and functionality is important, but if somebody gives the software away for, I don't know 30% less or even more, I think then it's heavy discounting, and that happens.

So, therefore we have also seen in some of our installed base, a few deals, not large ones - but a few deals where the discounting was so heavy that we, let's say, couldn't follow.

We will watch now and see how a competitor in some cases, with a smaller number of users, and not making money, let's say, will improve.

But that's what it is.

We have to face it.

You cannot always say, okay, I'll give money away.

We have to be extremely careful.

We have a big installed base.

People talk to each other.

We have to keep a certain level of pricing, no doubt.

So, then we have many cases where we say, okay we will not go further and we stop negotiating the deal, that happens. [indiscernible]

Okay, thank you.

Thank you.

Next question please.

Our next question comes from Rick Sherlan(ph) of Goldman Sachs.

Thanks.

First on Japan, Leo if you could just clarify, it wasn't real clear on your response to Brent's earlier question on Japan.

Did you say that you thought that would take the year to turn around?

I know your comparisons not so bad in Q2, but a clarification there.

Then on the US, if you could just comment, a comparison also, while it's challenging in Q3 it's not too bad in Q2.

Should we look for a similar kind of growth in the US in Q2, or was there something unusual that you experienced in terms of the realization of revenues in Q1 there?

Many questions Rick.

Let me try to answer the first one at least.

As I said, I wasn't actually talking about turn around per se, I was talking about realigning our organization in Japan to meet the market needs, our new realigned market needs in that market.

That will take until the end of the year, because of the structural constraints that one faces in Japan.

Regarding the performance of each region, you know very well that we usually do not comment on that.

I think Henning and Werner have said what they had to say about the guidance.

I am sure you can draw all the conclusions from that.

Rick, here it's Henning.

I think what we can do, and what we did in the past, is if you look about seasonality and those type of things.

I think look to our historical pattern and then you have a good feeling, let's say about the performance, let's say of the next quarter.

Thanks.

Thank you.

We have time for one final question.

That final question will come from Matthew Hammond of CSFB.

Thank you.

Good afternoon.

Could you just give us a feeling of the breakdown of where you're going to be taking the sales and marketing staff, and also where you have taken the incremental sales and marketing staff?

Is it actually between Americas and Europe?

I think it is not a surprise, let's say we ramped up people in the US.

We have not ramped up people for the company in Germany, it was at the beginning of the year a slight decline.

It doesn't mean that we don't believe in the business in Germany, but [indiscernible].

If you look at the beginning of the year we looked who we'll keep, let's say, from your people and whom help to look for other opportunities.

But that means that over the year we will also see some ramp up in Europe and Asia as well.

But indeed in sales and marketing it was mainly the US and a little bit global marketing.

Going forward?

Going forward we will make the necessary adjustments as the market opportunities will appear.

There will be some adjustments, if you take the Japanese example.

If we need to realign the organization there and adjust some of the skill there also there will be some net ins for a given period of time.

There are interesting opportunities that we actually capture in some of the exciting markets in Asia Pacific, and there we will forward the market as well.

As we see the situation evolve in Europe, I am sure that we will start to look into capturing those opportunities as well.

We will not do anything that will hamper our growth capabilities in the US, from the headcount side of it.

Thanks a lot.

That concludes the conference call for today.

Thanks for joining us.

We look forward to seeing you at our [indiscernible] conference in New Orleans in the second week of May.

Thank you.

That concludes today's conference call.

Thank you so much everyone for joining us.