SAP SE (SAP) 2009 Q1 法說會逐字稿

Welcome to the SAP's first quarter results conference call.

This call is being recorded.

Today's call will be hosted by Leo Apotheker, Werner Brandt and Bill McDermott.

I will now turn the call over to Stefan Gruber.

Please go ahead, sir.

Okay.

Good morning or good afternoon.

This is Stefan Gruber.

Thank you for joining us to discuss SAP's first quarter 2009 results.

I am joined by Leo Apotheker, Werner Brandt and Bill McDermott.

Werner will discuss the Q1 financials in detail and Leo will comment on the current business environment, regional performance, product successes and our strategy.

Following Werner's and Leo's comments, we have time for Q&A.

I will now make, as usual, a few remarks about forward-looking statements.

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

Words such as anticipate, believe, estimate, expect, forecast, intend, may, plan, project, predict, should, outlook 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 and Exchange Commission, including SAP's annual report on Form 20-F for 2008 filed with the SEC on March 26th, 2009.

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

And with that, I would like to turn the call over to Werner.

Thank you, Stefan.

Before I begin, let me inform you that I will be speaking mostly about non-GAAP figures as they are more inline with how we are internally looking at our operational performance.

Non-GAAP measures are the basis of our guidance.

The difference between US GAAP and non-GAAP figures are the result of two things; first, the exclusion of a write-down of deferred support revenue in the amount of EUR11 million, compared to EUR47 million in the first quarter of 2008.

And second, the exclusion of acquisition-related charges in the amount of EUR66 million compared to EUR83 million in the first quarter of 2008.

More details on our non-GAAP measures, the reasons for their use and reconciliation to the most comparable US GAAP measures are provided in our press release.

Please carefully note that our non-GAAP measures are not adjusted for the impact of the EUR160 million restructuring charge we incurred in Q1 resulting from the previously announced reduction of workforce.

Therefore, both our US GAAP and non-GAAP numbers are negatively impacted by these restructuring charges.

As you may recall, at our Q4 results conference in January I spoke about the future IFRS reporting, which I want to reiterate today.

During 2009, SAP will continue to report its financials according to both IFRS and US GAAP.

All quarterly earnings press releases and quarterly reports will provide both US GAAP and IFRS financial information.

Capital market communications, like our business outlook, will be based on non-GAAP numbers derived from US GAAP numbers.

The press release for Q4 2009 will be the last document providing US GAAP financials.

SAP's annual report, as well as the annual report on Form 20-F for fiscal year 2009, will only provide IFRS financials.

And beginning in 2010, SAP will change its reporting standard to IFRS only.

Therefore, beginning in 2010, all financial information and capital market communications, including business outlook, will be based on IFRS and not non-IFRS figures.

With that, let me say that we are very pleased to report very strong operating margins, despite the very challenging business environment.

Let me give you the highlights of the first quarter.

Non-GAAP software and software-related service revenues for the first quarter of 2009 were EUR1.75 billion.

This represented a year-over-year decrease of 4% at constant currencies.

This decrease was the result of a decline of 34% in software revenues at constant currencies, a strong increase of 12% in non-GAAP support revenues at constant currencies, and an increase of 21% in subscription and other software-related service revenues, also at constant currency.

In the first quarter of 2009, our recurring revenue stream accounted for 55% of our total revenue.

In the first quarter our support revenue was positively impacted by our successful rollout of Enterprise Support.

However, due to the difficult operating environment, we also had a negative impact of EUR87 million from increased sales allowances, primarily resulting from potential collectability issues with individual customers, mainly in North America, for which we recognize the revenue when cash is received.

First quarter professional services and other service revenues were EUR648 million, which was a decrease of 11% at constant currency.

Consulting revenues of EUR553 million decreased 8% at constant currencies, and training revenues decreased 31% at constant currencies.

The decline in training revenue was a result of a decrease in classroom training, which can also be expected in the current environment since many customers (inaudible).

Non-GAAP operating expenses decreased by EUR90 million to EUR2 billion, or minus 1% year-over-year.

This number includes restructuring charges of EUR160 million related to our previously announced reduction in workforce.

The number of positions reduced associated with the EUR160 million charge was approximately 2,200.

Roughly 50% of these employees have already left the Company as of March 31st.

The rest will leave in the following months, according to the labor laws in their respective countries.

As already stated in January, we expect a total amount of EUR200 million to EUR300 million of restructuring charges for the full-year 2009 related to the workforce reduction.

Also, keep in mind that we expect the reduction in workforce to lead to a decrease of EUR300 million to EUR350 million in personnel expenses in 2010 when compared to 2008.

Non-GAAP R&D expenses decreased 10% to EUR364 million for the first quarter, and represented 15.1% of total revenues compared to 16.1% of total revenues for the first quarter of last year.

The decrease in R&D expenses was a result of our continued focus on maintaining tight cost controls.

Non-GAAP sales and marketing expenses decreased 40% to EUR495 million for the first quarter and represented 20.5% of total revenues, a decrease of 2.5 percentage points compared to last year's first quarter.

The decrease in sales and marketing expenses was mainly the result of lower personnel expenses due to headcount reduction in this area.

Non-GAAP general and administrative expenses decreased 14% to EUR131 million for the first quarter and represented 5.4% of total revenues, compared to 6.1% of total revenues for the first quarter of last year.

The decrease in general and administrative expenses was the result of effective cost saving measures, mostly in the area of non-customer related third-party expenses and headcount reduction.

Overall, the Company's non-GAAP operating margin at constant currency was 17.2% for the first quarter, which represents a decrease of 2.3 percentage points compared to the 19.5% in the first quarter of 2008.

However, the first quarter of this year, non-operating margin was negatively impacted by 6.6 percentage points due to the restructuring charges from the workforce reduction.

Let me now give you the details on the gross margins.

The non-GAAP software and software-related service margin was [80.9%] for the first quarter of 2009, which was a decrease of 1.2 percentage points compared to the first quarter of last year.

The lower margin was the result of the decline in software and software-related service revenue due to the difficult economic environment.

The professional service margin was 20.5% for the first quarter of 2009, which was a decrease of 30 basis points only, compared to the same quarter of last year.

The consulting margin increased by 110 basis points due to a decrease in personnel and other operating expenses.

Conversely, the training margin decreased from 34.4% to 26.5%, mainly by a 31% decline in training revenues, which was partly offset by effective cost management.

Because of the slight change in business mix, the first quarter non-GAAP gross margin increased by 10 basis points to 64.6%.

Our US GAAP effective tax rate for the first quarter was 31.8% compared to 30.6% for the first quarter of last year.

For the full year, we continue to expect a tax rate in the range of 29.5% to 30.5%.

Free cash flow for the first quarter of 2009 was EUR1.3 billion, which is a strong increase of 32% compared to the first quarter of 2008.

The positive development in free cash flow was primarily the result of improved working capital management in the first quarter of 2009 compared to the first quarter of 2008.

Let me now give you an update on headcount.

As you know, in January we announced the reduction of positions to 48,500 FTEs by the end of this year.

At the end of the first quarter, headcount stood at 49,916 FTEs, which is a decrease of 1,620 FTEs compared to December 31st of 2008.

We remain on track to reach our record reduction target by the end of the year.

Let me finish up by saying that we have maintained our outlook for 2009.

Please refer to the press release issued today for the complete outlook.

I would now like to pass the call over to Leo.

Thank you, Werner.

Welcome, everyone, to today's call.

I am pleased to provide you with an update on the business environment, our regional performance and our quarter successes.

Let me start with the business environment.

And this has been one of the most [difficult] topics since the economic collapse back in September, 2008.

There is no doubt that the business environment remains tough.

While the pipeline begins to improve, closure rates are still unpredictable as customers remain extremely cautious and decisions are often delayed.

Customers are buying software, but purchasing in smaller pieces.

Therefore, sales deals and solutions that are quickly implemented and ready to run and deliver a fast return on investment sell best in this environment.

The good thing is that we are providing customers with the products that meet these requirements, like (inaudible) Business Suite 7 and SAP BusinessObjects solutions.

Moreover, as the dynamics of the business are changing, where volume becomes more important, these products and many others that SAP (inaudible).

In the first quarter 22% of our order entry value came from new customers.

This is a good achievement in this type of environment.

That said, 78% of our business came from our existing customers.

As the largest business applications company in the world, our more than 86,000 strong customer base provides great opportunities to continue to cross and up-sell (inaudible) when new customers tend to be a bit hesitant to make purchases.

Another area of strength at SAP is value-based selling, or what we call value engineering, and its corresponding value delivery.

Value engineering engages with thousands of customers each year across the world and has captured in-depth metrics and best practices for industry and business forces, making it a highly scalable service.

Value engineering is a competitive advantage for SAP, and it's even more valuable in this environment where customers want their projects to be on time, on budget and on values.

Value delivery is our customers-centric approach across all of SAP to help customers concerning the value of their investment in SAP, and achieve the goals they set forth at the inception of their initiatives.

We believe that the alignment of value and value consumption is a critical component in making each customer successful and driving long-term success for SAP.

As you saw, our non-GAAP software and software-related service revenues were down 4% at constant currencies in the first quarter.

As we stated in our fourth quarter 2008 results press release, and again at the end of the conference on the same day in January, the first half of 2009 would be a very difficult in comparison to the first half of 2008 due to a difficult operating environment.

And secondly, 2009 no longer includes the positive effect from the acquisition of BusinessObjects.

And third, a tough comparison to the strong results reported in the first half of 2008, which was prior to the economic crisis that disrupted the global markets in the third quarter of 2008.

It is important for you to remember that this expectation continues to hold true for the second quarter of 2009, which will be an even tougher comparison to the second quarter of 2008, as the first quarter of 2009 was to the first quarter of 2008.

While visibility for software revenues remains limited, we continue to focus on perfecting our operating margins while adjusting our business model.

As we did in the fourth quarter of last year when we began a program of tight cost controls and reported strong margin growth, I am pleased to say that we were successful again in the first quarter of 2009, as demonstrated by the strong first quarter operating margin results that Werner talked about earlier.

Our business model is flexible so that we can rapidly change our cost structure when necessary.

Our cost containment measures and workforce reductions remain on track, allowing us to reaffirm our guidance for 2009.

Our competitive position has not changed, regardless of the environment, nor did we expect it to.

Our win rate was 80% against our next competitor, as they have been for many quarters, and we remain the undisputed leader in industry solutions (inaudible) of organic growth in developing and delivering more than 25 end-to-end industry-specific platforms.

One example of where we are demonstrating leadership in verticals is in utilities; specifically, in smart metering.

We announced with Landis+Gyr, one of the world's premier metering solutions providers, a software development cooperation agreement for the integration of Landis+Gyr's advanced metering infrastructure with the SAP for Utilities solution portfolio using enterprise services.

We also announced that Consumers Energy will become the first utility to purchase SAP AMI integration for utilities software.

Let me now move to our regional performance.

As you can see from the results we reported, each of the regions experienced a decline in software and software-related service revenue on a non-GAAP constant currency basis.

What we are experiencing from the customer's perspective is quite similar in all regions.

Customers lack visibility, cash and the ability to obtain credit.

So, they are often hesitant to make purchases unless the software meets the customer's specific need, as I mentioned earlier.

To SAP's benefit we have a large portfolio of products offering customers choice and flexibility to meet their specific requirements.

We have seen quite a lot of incremental business, small ERP purchases and sales of analytics and performance optimization applications.

We are also offering financing through third-party financing providers, once again helping customers in this difficult economy.

Software and software-related services (inaudible) among the countries within the regions, like always.

For example, Western Europe didn't perform so well, while the Middle East shows good results.

Emerging Markets in general was down, but China was relatively flat.

Nevertheless, the BRIC countries as a whole were much lower.

Key contract wins in the EMEA region were (Inaudible) Pharmaceuticals Limited, (inaudible), and Banc (inaudible) Group.

In the Americas we signed Recreational Equipment, Inc., (inaudible) Petroleum and Saskatchewan Telecommunication.

And In APJ key wins were National University of Singapore, Liaoning Electric Power Corporation and (inaudible) Company.

We continue to deliver the most advanced product portfolio and technology platform in the industry.

We believe we are well ahead of our competitors.

We have a clearly defined product roadmap, a service oriented architecture with more than 2,800 enterprise services, a fully-integrated suite of solutions for large and small enterprises covering more than 25 industry solutions.

Moreover, we continue to innovate, incorporating new technologies like our enhancement packages, which deliver innovations without disruption to customers that no other competitor can offer.

To date, there has been more than 3,500 downloads of enhancement packages.

Some companies believe in a strategy of (inaudible) on multiple platforms.

One of SAP's strengths is its single open platform with a (inaudible) ecosystem development for others.

That brings me to our new SAP Business Suite 7 that we announced in February.

We are very excited about these products.

We currently have (inaudible) customers in ramp up and it will be generally available in the very near future.

SAP Business Suite 7 (inaudible) environment.

It's highly modular.

It's something we consider a business (inaudible) that focus on industry-specific business outcomes.

It can be deployed in a step-by-step process quickly, generating faster ROI and (inaudible) technology and has embedded analytics capability from SAP BusinessObjects for better and faster decision making.

Business functionality that customers need now.

Moreover, SAP Business Suite 7 provides more opportunity for customers to upgrade, augmenting their existing SAP applications.

SAP's BusinessObjects (inaudible) is another product you will hear more about in the near future and another product geared perfectly for the current environment.

Data exploration will be much faster once SAP's BusinessObjects (inaudible) is combined with Business Warehouse Accelerator (inaudible) to use in SAP BusinessObjects (inaudible) with Business Warehouse Accelerator providing the speed in the backend.

It will be a power and extremely fast tool for data analysis.

Although it was a product that we jointly announced with IBM in January, Alloy software enables access to SAP applications and information through Lotus Notes.

IBM Lotus Notes is used by more than [46,000] companies and over (inaudible) enterprises use IBM Lotus Notes.

Alloy joins to it which enables users to access SAP software and data and supports key business processes using their familiar Microsoft Office [environment].

The latest version of Software [Duet] 1.5 supports new processes with recruitment management, purchasing management, workflow templates (inaudible).

Alloy as well could play a major role expanding SAP's addressable market to business users as it works in (inaudible) users of SAP's software (inaudible).

This quarter marks the first anniversary of the closing of our acquisition of BusinessObjects.

Now, joined together with SAP as SAP BusinessObjects, we couldn't be more pleased with the outcome of this acquisition.

From the speed of the integration to the sales success of SAP BusinessObjects Solutions, the acquisition has exceeded even our own internal expectations.

We continue to see good demand for SAP BusinessObjects Solutions.

Also of significance, especially in today's environment, where risk management, transparency, understanding business operations and making the right decisions are paramount, we are now delivering SAP Business All-in-One, which fully integrated predefined business intelligence functionality into the approximately 25 dashboards (inaudible).

This new product is very effectively priced.

It contains prepackaged business and data content and requires minimum cost related to hardware, services and [fringe benefits].

This offering further increases value for mid-sized companies by supporting (inaudible).

You may have seen our press release today on our agreement with SUGEN on the defined list of key performance indicators that will be used to measure the success of SAP Enterprise support services.

SUGEN and its members are all fully behind this agreement and endorse this industry-leading effort.

As part of the agreement, we also (inaudible) pricing schedule for maintenance increases.

Customers will now move to 22% over a 7-year timeframe instead of 4.

With these adjustments, SAP demonstrates a clear commitment (inaudible) with customers in the challenging global economic conditions they must navigate today.

The commitment to our customers is a core value of SAP.

(Inaudible) we are confident that it delivers unparalleled value to all customers and is a significant step from the active problem solving to proactive management improvement of a customer's IP landscape into the end-to-end solution operation for the entire application (inaudible).

In fact, this is a bold step to initiate maintenance and support within the industry.

For enterprise support, SAP is not only the world model for the evolution of software support, but stands alone among the competition in providing transparency into how the value of our support can be measured for our customers.

Enterprise support (inaudible) competitive advantage for SAP.

We are the leader in this industry in enterprise support.

This industry-changing dynamics is just another example of SAP demonstrating through leadership and customer focus.

In closing, let me say that while economic times are quite challenging, it is not the first time we have experienced a downturn.

Tough times create opportunities for strong, healthy companies.

We can become the leader without sacrificing (inaudible).

We have a strong, flexible, scalable and (inaudible) business model with a high percentage of recurring revenues continue to trend upward.

For example, in the first quarter of 2009 55% of our revenues were recurring, compared to only 19% 10 years ago.

We have the most robust portfolio in the business application space and have the ability to continue to innovate in these tough times.

And yes, innovation is important.

As you may recall, continued innovation during the last recession resulted in the new products you see today (inaudible) the strength in our leadership position when the market recovered.

We are in an even better position now than during the last downturn.

Once again, we expect to emerge a much stronger company, as we did the last time.

Thank you for listening and we will now be happy to take your questions.

Thank you.

(OPERATOR INSTRUCTIONS.) We will now take our first question from Raimo Lenschow from Banc of America.

Please go ahead.

Two questions, if I may.

First, a question for Werner.

First of all, well done on the cost savings so far.

I just was wondering, if you look at the cost OpEx run rate in Q1, does that already include any benefits from the employees that have left already the organization, or is that just pure non-personnel related savings?

And a question for Bill and Leo.

If you look into Q2, obviously the year-over-year growth rate will probably look a lot worse than Q1.

But if I look into the second half of the year, has there been any change in terms of visibility?

Do you feel slightly better because customer behavior becomes slightly more rational?

Is there, in terms of pipeline building, something going on?

Thanks for that.

Okay.

Raimo, I will start, take the first part of the question.

If you look through the operating expenses, the reduction in personnel expenses contributed the least to the reduction in operating expenses if you exclude the restructuring charge.

If you exclude the restructuring charge, then you see a decrease of our operating expenses quarter-over-quarter by nearly 9%.

And I think we have some expenses, if you looked from a stand-alone perspective, quarter-over-quarter only reduced by roughly 3%.

So, the majority is coming from the other cost containment measures like reduction in third-party expenses, subscriptions and reduction on credit expenses and other areas.

Perfect.

Thank you.

Yes.

On Q2, you're absolutely right.

The comparison on a year-over-year is tough for Q2 in '09, especially considering the very large Q2 '08 that we had.

And as Leo pointed out, the environment is difficult out there.

Having said that, as we look into the future, into the second half, the pipeline does continue to build in the Company quite strongly.

We are looking at coverage comparisons that look similar on a year-over-year basis to what they looked like in '08, which is encouraging.

And we're also managing the business not only at a revenue coverage level, but at a deal and a volume coverage level because we understand that we have to substantially increase the number of transactions given the economic cycle we're in.

Perfect.

Thank you.

Thank you.

We'll take the next question, please.

The next question is from Michael Briest from UBS.

Please go ahead.

Good afternoon.

Thank you.

Werner, a question for you on the provisions you mentioned, the sales allowances.

EUR87 million obviously is quite a large number relative to prior quarters.

Could you say perhaps how much of that was taken against licenses and how much against maintenance?

Perhaps also how much of it is specific as opposed to a general allowance?

And then for Leo, in terms of the linearity in the quarter, January through March, did you notice any change, any stabilization, improvement, etc.?

And also, perhaps could you say how many of the deals in the quarter were over EUR5 million?

I think last year it was about 17%.

Thank you.

Yes.

I take the first part, Michael.

The majority of this EUR87 million was coming from the support area.

So, it had nothing to do with new licenses.

It really is the support areas and support invoices we send out.

And then looking into, maybe in a very conservative way, (inaudible), and this do we anticipate any shortfall from customers due to financial distress.

Hi there, Michael.

The linearity in the quarter was not abnormal and was probably modest as usual, maybe even more than usual stretching more towards the backend in the quarter given the very, very, very tough trading conditions in January and February.

And there was a little bit of a better climate in the last weeks of the quarter.

And as for the deal metrics, about EUR5 million accounted for 12%.

Could you say maybe something about the pricing environment?

Were customers expecting more discounts?

Or perhaps do you think the enterprise support issue affected deal closure rates?

Pricings remained as soft as it was before.

People are extremely tight when it comes to cash and liquidity.

They have a hostile (inaudible) and therefore trying to optimize on every site they can.

Okay.

Thank you.

We'll take the next question, please.

Our next question comes from Gerardus Vos from Citigroup.

Please go ahead.

Thanks for taking my questions.

I've got three questions, if I may.

First of all, was there anything kind of atypical about the kind of quarter -- or licenses, have restructuring, any kind of impacts on the quarter?

And if that's not the case, if we would apply normal sequential seasonality -- and I know it's very difficult to apply anything normal in this environment, but if you would do that, you get to a number around EUR2.6 billion for the year, which is quite a bit light versus (inaudible).

I was wondering if you could make any comments on that.

Then secondly, in the kind of improvements in the pipe, what is really driving that?

Is that suite -- the new Business Suite or are there other kinds of factors in there?

And then finally, on the headcount reductions, so the main kind of reductions at the moment have been in the US if you look at the Q1.

Would you expect the kind of European reductions to kind of bear fruit and drop out of the payroll?

Thank you.

Okay.

Let me start with the seasonality.

I think it would be a serious mistake if you take the total seasonality performance into 2009.

We had an exceptional year due to the economic crisis we see around the world.

And I only can recommend that you do not use the total seasonality.

If you look to the reductions, what I said in my introduction remarks, of course we saw a stronger workforce reduction in the first quarter in Asia-Pacific and in the Americas.

But that's normal.

The European law generally provides a longer period of employees to actually leave the Company.

And that's actually happening and we will see the benefit then throughout the next two quarters, also from a position reduction, extra position reduction perspective.

Yes.

And maybe from a product (inaudible) here or what is selling out in the markets, SAP has a very wide and deep catalog, portfolio of products ranging way beyond the business suite, from the analytical side to the performance optimization side, to industry solutions, to on-demand solutions, to subscription solutions.

So, you can't really pinpoint (inaudible) product.

What we do see is a good uptake from our ramp-up customers when it comes to the Business Suite.

We're announcing a set of new products also on the analytical side but, of course, they will be officially announced at SAPPHIRE.

So, the demand has actually been driven from many sides in the portfolio.

And as Bill indicated earlier on, he is driving the salesforce with a keen and sharp eye on the volume side, which helps us to have a much deeper and a much more -- and a greater variety when it comes to the type of products that are being sold to our customer base.

Okay.

Thank you.

(Inaudible.) I think we take the next question, please.

Our next question comes from Phil Winslow from Credit Suisse.

Please go ahead.

Hi.

Thanks.

Just want to dig in a little bit more on just your expectations for operating expenses.

Obviously saw a big decline quarter-to-quarter and then you did mention that you'll see more of these head that actually were even let go in Q1 start to come off and come off payroll by Q2 and beyond.

So, how should we think about, just from almost a seasonality perspective, just modeling operating expenses in Q2?

Or how do you all think about it in Q2 and Q3?

And then just one thing back on the provision for doubtful accounts.

Wondering if you could just give us some more details if this actually is applying to customers that have been -- have indeed, let's say, gone into bankruptcy or those that you're just really concerned about and if it applies to any sort of particular particles?

I take the first part of the question.

And I think if you look to this type of customers where we booked the sales (inaudible), it's mainly related to financial distress.

And some of them are in bankruptcy, but it doesn't mean that they do not pay.

Maybe when they are under Chapter 11 they continue to pay, but we were cautiously considering this when we closed the books for the first quarter.

Now, regarding the operating expenses for the following quarters, it is a bit difficult at this point in time because we have not yet the full picture on when people are leaving.

We haven't made all the calculations, detailed calculations now.

So, I cannot answer that question.

Of course, we will continue to have tight cost control in Qs 2, 3 and 4.

And on top you will see the positive impact from the reduction in personnel expenses, but I cannot quantify this at this point in time.

Okay.

Great.

Thanks.

Thank you.

The next question, please.

We will now take a question from James Dawson from Morgan Stanley.

Please go ahead.

Hi there, guys.

A couple of questions from me.

Just in terms of -- on this cost point again, Werner.

We see you've done incredibly well in the first quarter.

And if you do use kind of normal seasonality, it's difficult to see how you're not going to be above your guidance in terms of the margins.

How are you feeling about the outlook that you've given, being that we're early in the year, or are there things on the cost side that we're -- that we don't understand?

And the second question is on the support.

Is there -- I mean, do we expect the support revenues to start to grow sequentially now through the year, or are there -- is it doubtful debts, that would be something that could be greater through the year?

I'm sorry.

Could you -- before I answer, can you repeat the second part of the question?

The line is not so --.

The second question was really about the doubtful debts.

How do you feel about these going forward?

Do you think there's room that these could even be greater through the year or do you think that you've been conservative enough on doubtful debts around the support?

I don't think so.

I think we have done everything as far as of the first quarter and we do not anticipate that we need to consider additional sales allowances of the same type during the next quarters.

If you look to the cost control, I would say that the margin has -- is our first priority, to deliver on our margin guidance.

And it is clear the visibility, as Bill mentioned, into the next quarters is limited.

That's the reason why we (inaudible) the guidance and focus on the margin.

And we will do everything to deliver on our margins.

More I cannot say at this point in time.

Leo, anything to add?

Maybe, James, I can add only one comment.

We already (inaudible) of our guidance for 2009 and I'd like to make sure that we all are on the same understanding.

We gave guidance on the margin and we tried to give all of you a working assumption or hypothesis when it comes to SSRS performance for the year.

And the guidance, in fact, is a margin guidance first of all and that's how I think you should read it.

Okay.

Thank you.

We'll take the next question, please.

Our next question comes from Knut Woller from UniCredit.

Please go ahead.

Hello.

Thanks for taking the question.

Just -- I know it's already been stressed pretty clearly, but I just want to get a feeling for the OpEx savings.

I mean, in the last downturn you saved something I think in 2003, something like more than EUR400 million in costs.

And if I remember correctly, Werner, you indicated in former comments you see some ex-restructuring charges in the range of EUR400 million to EUR700 million OpEx savings.

Is that something that would still hold true, the first part of the question.

Then the second one, a more strategic one.

Given the recent ongoing consolidation in the industry, how do you see your own strategic positioning going forward?

Thank you very much.

Yes.

I'll take the first part and Leo will take the second part.

Knut, if you look to -- the comment I made earlier, the impact from the workforce reduction in 2010, this reduction of EUR300 million to EUR350 million, that already is a big chunk of the operating reduction we envision for 2010 over 2008.

But if we continue to manage costs as tight as we did in the last two quarters, you will see also the difference to the amount you just mentioned, EUR600 million to EUR700 million, slowing as we continuously look to reduce our third-party expenses, travel expenses and all other kinds of operating expenses.

So, from that perspective, I still hold to what I said previously, that this is the range we can take if you compare 2008 -- I'm sorry, 2010 with 2008.

Yes, Knut.

And regarding the consolidation, let me try to give you a bit of a perspective on that.

If you take it from the SAP point of view, we are the world's largest provider of business application software.

We are a company with 86,000 customers and our market share is roughly twice as big as number two.

We have just finished integrating very successfully the third largest M&A operation in the software industry, historically speaking.

That's BusinessObjects.

So, we feel rather good about our strategy, where we combine organic growth under normal circumstances that assures (inaudible) and (inaudible) we will pretty much beat the stack on the higher side of the value-added side of the stack.

I don't think that we are terribly interested in trying to consolidate the lower end of the stack, the hardware side.

In particular, when you look some hardware that's at the higher energy consumption of all existing hardware in a time where everyone is trying to save energy.

But that's a different reasoning.

We feel comfortable about our position.

But I can assure you that we keep on monitoring the market and we will be looking at the market.

And should there be an opportunity out there that makes sense for SAP and for our customers, we will not hesitate.

Thank you very much.

Thank you.

Let's take the next question, please.

Miss Sarah Friar from Goldman Sachs has our next question.

Please go ahead.

Good morning or good afternoon.

Thanks for taking my question.

The first question's just on the maintenance side.

Clearly, the weak license revenue growth this year weighs on maintenance as you look out into next year.

How do you think about creating some ballast against that in terms of maintenance growth rates?

And then secondly, Bill, you talked about needing to increase the number of transactions, just given the pressure on deal sized.

How are you thinking about changing the salesforce or providing different incentives to enable that transition to occur?

Sarah, this is Bill.

Let me first of all talk about what we're doing with the salesforce.

We really are innovating the way we manage the business on a day-to-day basis.

I think Leo talked earlier about the move the customers made to value because every deal starts with a business-led outcome.

So, at the high end you have to look at the customer's business from the outside in and truly innovate their business based upon metrics, business value and fast return on invested capital.

So, everything starts with that.

We're innovating the salesforce and the way they think about deals.

And one of the major changes is really looking at order entry because on a year-over-year basis, if you improve your order entry, while not every single deal may be recognized in the current quarter, you build a nice backlog of business.

So, we're looking to combine both our quarterly focus, which is our "used to," with an order entry focus so we build a good backlog and a healthy annuity stream going forward.

Hello, Sarah.

This is Leo.

Let me try to answer the second part of your question, that basically Bill already addressed in his answer.

I think you should follow the guidance we have been trying to give to the capital market now for some time and look at SSRS as our products revenues and not just as two numbers, which is license and support.

In fact, in SSRS there is more than just maintenance.

There is subscriptions, there's on-demand services and things like that.

We are and we have been in the process -- and will continue to do so during this quarter and next quarter and during the next years, in fact -- we want to adjust our business model and have a much more diversified income stream from our software products.

We want to generate subscriptions.

We want to do more in the on-demand business.

We will continue with the (inaudible) license sales and of course, on that basis, generate maintenance.

So, I'd like to encourage you to decouple this binary equation and that you look at the entire portfolio and really focus on SSRS and not just on one or the other item of SSRS.

Got it.

Okay.

Thank you.

Thank you.

Next question, please.

Our next question comes from Ross MacMillan from Jefferies.

Please go ahead.

Thanks.

Maybe, Leo, just on Business Suite 7, do you think that's going to act as a catalyst for more of your customer base to move to the new, or relatively new core components for ERP?

And therefore, does that open the door for you to effectively cross-sell more into your base, assuming that Business Suite 7 sees adoption levels that are on plan?

Ross, there is actually a very good adoption rate happening out there with ERP.

Which is, by the way, helping the big adoption of Business Suite 7 and not necessarily the other way around.

So, ERP is going very well.

We have a big movement of companies moving to ERP, if only because of the TCO equation is significantly lower with ERP.

And on Business Suite 7, the innovation is actual two-fold, or maybe even three-fold.

On the one hand it has impacts across the entire business suite.

The second thing are very innovative business processes, end-to-end business processes that we ship for industry and are shipped as such as an end-to-end business process.

And last but certainly not least, it is truly a business suite from a technological point of view in the sense that it contains 2008 enterprise services that are constructed from a holistic point of view.

And you can implement it in a modular way.

So, we see quite a lot of pent up demand for Business Suite 7.

We are still in the ramp-up phase.

Just want to make sure that everyone understands that.

We are very optimistic about coming out of the ramp-up phase with flying colors and so we can mass market it and Bill's salesforce can sell it.

And by the way, we have already quite a lot of demand for modules, of part of the business suite that tend to implement it as such thanks to the (inaudible) that we have designed.

Maybe just a follow up, one for Werner.

With the expansion of the maintenance price change from four years to seven years, does that lead you to any different thoughts about cost base growth or, indeed, incremental cost saving measures beyond the current year?

Just wondering if there's any kind of tie-in in your mind between the two?

Thanks.

No.

Ross, first of all, 2009 pricing is not affected.

And remember, this only applies to the installed base.

If our customers are buying new licenses, the 22% apply right away.

And here we only talk about an extension of the period for adjusting the rate from 17% to 22%, from four to seven years.

But in 2009, this has no impact to costs.

2009 over 2008 will -- there we will apply the percentage of 8% to 18.3% as the maintenance support rate.

Going forward I think we have a focus on margin and this means that, in any case, we have a tight focus on controlling our costs.

So, this is not an additional lever to our cost containment activities in our organization.

Okay.

Thank you.

Next question, please.

From company Deutsche Bank, we will take our next question from Mark Bryan.

Please go ahead.

Yes, thank you.

Good afternoon.

Just a couple of questions from my side, if I may.

Firstly, I mean, I think we're all aware during Q1 the tough comparison you faced on the license side.

But could you maybe help us understand the decline between a volume and a price implication?

I'm really sort of trying to understand here if you were prepared to discount or whether if you held the line on pricing and perhaps even seen some market share erosion.

And secondly, the question around the comparison rate for Q2 is obviously even more a problem.

As you said, it gets even tougher.

But actually turning it the other way, is there anything in the pipeline, anything you might be seeing in terms of stability or customer behavior that suggests that you actually might do better than the next 34%?

Is it impossible?

Are you targeting that?

Thank you.

First of all, I'd like to touch on the first quarter and the environment, Mark.

On deals, there were less deals and the average selling price was lower on a year-over-year basis.

But it wasn't dramatic in terms of the number of deals and it wasn't dramatic on the average selling price.

But that's why we're focused on volume and increasing the number of transactions in every theater, in every industry, in every market segment.

That is the focus.

Now, as it relates on a go-forward basis, what was your main interest in Q2?

Is it likely to be better than Q1?

Right.

The assumption I think pretty much from the Merrill Lynch question I think collectively probably most on the call are assuming that in Q2 -- I guess myself included -- that it will get worse in terms of the drop, that you'll see a worse decline than 34%.

You obviously have a much better feel for your pipeline and what you're targeting.

And I'm wondering if it's impossible for you to actually improve that.

Yes.

I think that it's pretty clear the Company is guiding on the margin because there is a lack of visibility in the marketplace.

And you are right in terms of the difficulty of the comparison.

Q2 was an especially strong quarter in 2008.

And actually, it contributed to 5 percentage points of our revenue greater than it normally did on a historical run rate basis.

So, you have to take that into account.

Therefore, I'd say let's focus on the margin.

Let's acknowledge that the visibility is a challenge and also that the comparison is tough without trying to apply a metric to it because we're focused on our customers and executing our plans.

And I think Leo did reiterate guidance.

Thank you.

And maybe I can add just one point to what Bill has just said.

We never give quarterly guidance anyway.

Our guidance is yearly and we'd like to stick to that.

Thank you.

I think we have time for one final question, please.

Our final question today will come from Jochen Klusmann from BHF Bank.

Please go ahead, sir.

Yes, hi.

Two questions.

One is on the structure charge for the full year.

I mean, given the fact that (inaudible) say fairly easy country with the personnel reduction, is there any danger that we're going to end up with a number higher than EUR300 million?

And the second question is on your maintenance revenue.

I mean, I understand if I take the EUR87 million sales allowance into account then the number looks a little better.

But just trying to get a feel.

I mean, how do customers react right now with maintenance contracts?

I mean, do you see a lot of customers trying to give back licenses or (inaudible) the discounts, specifically on maintenance contracts or is it pretty stable?

Okay.

Jochen, the question regarding restructuring, I think we will not exceed the range we provided, EUR200 million to EUR300 million.

And we have included in our restructuring charge the implications from Germany, which actually is -- it carries the highest cost.

And from that perspective, we will definitely stay in the range of EUR200 million to EUR300 million.

Okay.

Yes.

And Jochen, let me maybe say a few words about the situation around maintenance.

It is obvious in the current climate that customers are trying to pinch every euro, dollar, yen, pound that they have before spending it, which is why the agreement we have reached with SUGEN and the KPIs that we have agreed to deliver and the value-based provisions that we are providing out of enterprise support is so important.

Because there is the only maintenance and support offering in the entire industry (inaudible).

No one else comes even close.

It's actually measured to provide customers with the metric to tell them how much value they can generate out of the maintenance (inaudible).

And I have to tell you as by -- that having done that, the discussions with our customers has radically changed when we talk about maintenance.

It is not about price anymore.

Everyone is now very much focused on extracting the value.

And that you know very well, people are more than happy to pay for the value provided they get it.

And then maybe I can add that most of our customers accepted the new contracts we sent out with the new enterprise support platform.

Okay.

Thank you.

Thank you very much.

This concludes our conference call for today.

The call will be available for replay purposes on our website.

Thank you all for joining and goodbye.

That does conclude today's conference call.

Thank you for your participation, ladies and gentlemen.

You may now disconnect.