SAP SE (SAP) 2010 Q2 法說會逐字稿

Ladies and gentlemen, welcome to the SAP second-quarter earnings financial analyst conference call.

I am Maria, the operator for this conference.

Please note that, for the duration of the presentation, all participants will be in listen-only mode, and the conference is being recorded.

After the presentation there will be an opportunity to ask questions.

(Operator Instructions).

At this time, I would like to turn the conference over to Mr.

Stefan Gruber.

Please go ahead, sir.

Thank you, and good morning or good afternoon; this is Stefan Gruber.

Thank you for joining us to discuss SAP's second-quarter 2010 results.

I am joined here in Walldorf by Bill McDermott, Jim Hagemann Snabe and Werner Brandt.

Bill, Jim and Werner will have prepared remarks for this call; and following their prepared remarks, we will have time for Q&A.

Before we start with the call, I will make a few remarks about forward-looking statements.

Any statements made during this call that are not historical facts 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 SEC, including SAP's annual report on Form 20-F for 2009 filed with the SEC on March 25, 2010.

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

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

Thank you, Stefan.

Before I begin, let me tell you that I will focus on our non-IFRS figures, as they are more in line with how we internally look at our operational performance.

Also, these non-IFRS measures are the basis of our guidance.

Let me give you the highlights of the solid second quarter.

We are pleased to report strong top-line performance in which non-IFRS software and software-related service revenues grew 16% reported and 8% at constant currency to EUR2.26 billion.

The strong SSRS performance was driven by an increase of 5% in software revenues and a very strong growth of 8% at constant currencies in the support business.

In fact, support revenue increase sequentially by more than 9%.

As you know, we have seen strong retention and adoption of enterprise support within our customer base.

As a result of this strong top line, the non-IFRS SSRS gross margin increased by 140 basis points year-over-year to 38.4%.

Professional services and other service revenue declined 6% at constant currency.

The decrease in professional service revenue is mainly the result of the time lag between software revenue and consulting revenue.

We consequently saw the full impact from the crisis in the first half of 2010, whereas the first half of 2009 was hardly impacted by the crisis.

Therefore, we had a tough comparison in Q2 of this year compared to the second quarter of 2009.

The non-IFRS professional service-related margin declined by 4 percentage points year-over-year to 19.6%.

The decrease is the result of hiring consultants during the second quarter, especially in the United States, as we are beginning to see more demand for software projects, which can be expected as the environment continues to improve.

In addition, we had execution issues around one large project that negatively impacted our margin.

The overall gross margin was 69.7%, which is up 160 basis points year-over-year.

Looking at the expense side of the P&L, you can see the total operating expenses increased 4% year-over-year at constant currencies.

In contrast to the second quarter in 2009, the second quarter of 2010 was only impacted by EUR1 million of restructuring expenses, which were EUR17 million in the second quarter of 2009.

However, the second quarter of 2010 was impacted by severance expenses of EUR11 million.

The non-IFRS operating margin in the second quarter of 2010 increased 20 basis points year-over-year to 27.8% at constant currency.

The Q2 2010 EUR11 million severance expenses negatively impacted the margin by 40 basis points in the second quarter of this year.

We are striving to increase the operating margin in each and every quarter.

We will continue to stick to our tight discipline on expenses and balance investment needs accordingly.

Headcount increased only slightly, by around 403 FTEs in the second quarter.

We added most of the additional headcount in quota-bearing areas, such as account executives in the Americas region.

The IFRS effective tax rate in the second quarter of 2010 was 27.4%, which is a decrease of 1.1 percentage points and was 26.6% in the first half of 2010, which is a decrease of 3 percentage points.

The decrease mainly results from tax effects on changes in foreign currency exchange rates.

The currency-related tax effects recorded in the second quarter of 2010 were substantially compensated by several individually minor negative tax effects.

We continue to project an effective tax rate under IFRS of 27.5% to 28.5% for the full year of 2010.

Free cash flow in the first half-year of 2010 decreased by 33% year-over-year to EUR1.16 billion because of several special effects which we have outlined in today's earnings press release.

DSOs in the second quarter decreased by six days to 73 days compared to March 31 of 2010.

During the second quarter we did not buy back any shares.

For the near-term we do not expect to buy back any shares due to the Sybase acquisition.

Also, we paid EUR594 million in dividends in the second quarter.

As you all have seen in the earnings press release, we have closed the Sybase deal.

We have roughly 92% of the outstanding shares of Sybase, and this means that we will go for a short-form merger under Delaware law.

Our updated full-year 2010 guidance also includes Sybase as of today, which is the date when we will start to fully consolidate their financials.

The updated guidance is provided in today's earnings press release.

As a result of the acquisition of Sybase, SAP will, going forward, record revenue from messaging services.

To maintain the clarity of our income statement, we will from Q3 2010 onward aggregate the messaging revenue with our existing income statement line items' training revenue, other service revenue and other revenue into one line item called other service revenue, which is classified in the revenue section, professional services and other service revenue.

Should, in the future, any of these components of this line item become material to our total revenue, we will disclose such component separately.

We currently do not expect other changes to the structure of our income statement or other financial statements as a result of the acquisition of Sybase.

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

Thank you, Werner, and thank you, everybody, for taking the time to join today's call.

I am pleased to report another quarter of solid 8% growth in software and software-related service revenues at constant currency, 16% including currency.

We saw double-digit software and software-related services growth in many countries with a particular strong comeback in the United States.

We continue to see improvement in customer spending in most of our regions as customers are returning to invest for growth.

You can see the results in our business, namely, an increase in the number of large deals.

Deals greater than EUR5 million were 20% of order entry in Q2 2010 versus 12% in Q2 2009.

An increase in average selling prices; they were up 15% year-over-year.

21% of our business came from net new customers, and a 26% constant currency increase in subscription in other software-related services revenue was also realized.

And please know that we have an ever-increasing number of great reference accounts.

The solid performance is due to renewed customer confidence in some markets as well as focused execution of our go-to-market strategy in others.

We made long-term investments in fast-growth markets, grew our feet on the street to target line of business buyers and expanded our ecosystem channels to drive volume.

As I turn to our regional performance, the Asia Pacific/Japan region turned in good results with 8% SSRS growth.

Excluding Japan, SSRS grew at 18% at constant currencies.

The quarter was supported by good execution, continued strength in big deals and growing confidence within the small and mid-sized enterprise segment.

Japan's results were muted by a slow-growing Japanese economy.

However, we did see a reemergence in the large enterprise sector there and with a good pipeline heading into half two, we are optimistic that Japan can grow across multiple lines of business and industries.

Key wins in the region of APJ included Gold Coast City Council, AGL Corporate Services Ltd., China Tobacco and TDK Corporation.

In EMEA, we did see some cautious buying behavior combined with some execution issues in EMEA.

After a solid recovery in Q1 and good momentum heading into early Q2, overall economic conditions deteriorated a bit as the quarter progressed and customers became very cash conscious, rendering them a bit noncommittal, particularly on the larger upfront deals.

The performance in Germany was better than the rest of EMEA.

Germany's turnaround plan is showing results with a healthy pipeline for the second half of the year as well.

We remain cautiously optimistic on Western Europe heading into Q3, due to the economic uncertainty, but we are more positive on emerging European markets, where we had some execution issues in Q2.

Key wins included [Cafe Nacional], [De Assurance], Commerce BtoC, Heidelberg Cement and British Gas.

Finally, as you saw, results in the Americas were truly outstanding with 16% SSRS growth at constant currencies, led by a strong rebound in the US, and continued strength in Brazil.

In the US we saw a return of big deals propelled by a better economy, pent-up demand from last year's downturn and increased M&A activity.

Additional focus and coverage on the line of business and business user also drove the strong results.

We also saw some large deals in Latin America, which was nice, especially in Brazil, as companies expand beyond local borders into multinational companies.

In addition, we saw continued strong growth in the SME and business user segment.

Key wins included Banco Pine SA, Olympus Corporation of the America, the United Nations and Univar, Inc.

As the clear leader in industry solutions, we reported double-digit SSRS growth in the majority of our 28 industries, including our key focus industries of retail, banking, public sector, health care and high tech.

I am positive on the outlook for our business.

We set a clear strategy, put the customer at the center of everything we do and seriously increased our employee motivation across the Company.

The strategy is working.

We are growing again with a new fighting spirit and energy inside the Company, driven by a strong product pipeline and strategic moves like Sybase.

Speaking of Sybase, not only did SAP have a strong second quarter, but we are also very pleased with the outstanding results reported by Sybase, which delivered a record Q2 with revenue up 9% and earnings up 20%.

These Sybase results demonstrate two things -- number one, the strength of Sybase's solution portfolio; number two, confidence in SAP as customers continued to purchase Sybase solutions after the deal was announced, knowing that SAP will maintain and accelerate the development of Sybase's solution portfolio.

This is a reputation we have built with customers around the world by delivering on the promises we made when we acquired Business Objects in 2007.

We acquire companies whose products complement our own products.

Their know-how and their cultural DNA are also a beautiful match for SAP.

With Sybase, it will be no different.

In this context, we are deeply committed to Sybase's products and will continue to evolve them, including both database solutions.

Wherever possible, we will accelerate development by adding our own expertise and we will closely integrate the two solution portfolios.

Jim will talk more about this in a moment.

Our in-process measures for the remainder of the year are very positive.

Our pipeline is strong, fueled by our landmark annual customer event we call SAPPHIRE.

We had an unprecedented level of interest with over 50,000 participants, resulting in 50% more leads than last year.

Customers want to be best-run businesses, running real-time and unwired.

Our real-time, business intelligence and business analytics and mobility solutions are at the top of the CEO and CIO agendas, respectively.

The strength of our ecosystem continues to differentiate SAP.

We are expanding the market reach for our partner offerings, and we see continued growth in revenue from our SAP EcoHub and online marketplace for our partner solutions.

I would also like to highlight that we have made strategic investments in the sales organization and are shifting more global positions closer to the customer in fast-growing markets such as Brazil and the line of business.

We believe these investments in coverage will pay off handsomely in the future.

In closing, as we enter the second half of 2010, our focus will be entirely on flawless execution.

We will leverage our current momentum and the investments we have already made into our business to get full leverage.

Over to you, Jim.

Thank you, Bill and Werner, and welcome, everyone, to today's conference call also from me.

As mentioned by Werner and Bill, we're very pleased with the performance in the second quarter.

As you know, we have refocused the Company around three strategic pillars -- on-premise, on-demand and on-device, supported by consistent orchestration.

Most of our business today is based on on-premise products.

In markets where we see growth opportunities, the growth in on-premise comes from two dimensions.

First of all, we've continued to see more customers making strategic decisions in infrastructure to help them grow their business in a profitable way.

This is demonstrated by the high contribution from large deals mentioned by Bill, as well as a global enterprise agreement we signed with Bayer in the second quarter.

These decisions are based on business value delivered, as well as total cost of ownership.

We continue to see a very high win ratio in competitive strategic deals, such as American Water Works, the US Department of Agriculture, [Maharashma], [Ashcroft] Power, Liaoning Power and Rio Tinto.

The main reason for choosing SAP is that we have the most consistent portfolio applications and technology in the industry today.

Consistency means lower cost of ownership and more flexibility for the customer.

Secondly, the growth came from volume, which helped us reach the 100,000-customer mark at the end of Q2, an ambitious goal we set for ourselves back in 2005.

In Q2 we saw very high growth rates in our SME business.

Growth in emerging markets was particularly high, and we closed more than 10,000 deals in total in the quarter.

Success in SME requires making software easy to consume and reducing the implementation time from months to weeks.

Our leadership in SME is based on our multi-channel and open ecosystem strategy.

We continue to win more than 20 net new customers per day, on average, of which 94% comes through our strong partner ecosystem.

With our Business One solution and our all-in-one solutions, we are very competitive in the on-premise world and deliver best practices at a very low cost of ownership.

The success in terms of volume also forms a perfect basis for our second strategic pillar, the on-demand business.

Today the on-demand business category is mainly a line of business products market with a very narrow functional scope.

The benefit of on-demand is extreme ease of consumption.

This is relatively easy to achieve with a very narrow functional scope application.

However, companies who have implemented some of these very narrow-scope on-demand applications in the market today begin to realize that end-to-end data consistency and process integration is a big problem.

It's also a big need, and it's an expensive problem to solve on your own.

With SAP Business ByDesign, we have a true category killer.

SAP Business ByDesign is a complete suite delivered on demand.

With SAP Business ByDesign, we have an opportunity to change the on-demand market.

As promised, we will make the volume-ready version of SAP Business ByDesign available on Friday this week.

The newest version of SAP Business ByDesign Feature Pack 2.5 will be released as planned on July 31 and will be generally available in six countries.

With version 2.5, we have completed our move to a true multi-tenant architecture, which has allowed us to dramatically reduce the cost of operating the solution and to achieve the economics we were looking for.

These improved economics also allow us to introduce startup packages where customers can adopt the solution with as few as 10 users and then move to the complete suite over time.

In addition, we have further enhanced the product's functionality, accessibility, flexibility and the user interface, which is now based on Microsoft Silverlight.

The closing of the Sybase acquisition rounds off the third pillar of our three-pillar strategy -- on-premise, on-demand and on-device -- by becoming the leader in mobility.

With Sybase we will move beyond our traditional user categories.

We embarked on this journey with the acquisition of Business Objects and driving adoption of the business user, a group of employees that is still under-represented in the SAP user mix today.

With the acquisition of Sybase, we are further accelerating our expansion into new user categories.

Sybase Unwired Platform is an unmatched solution to build mobile applications for a broad range of back-end IT systems and front-end mobile devices.

We will leverage Sybase to further broaden our coverage of business users and mobile workers and start to target consumers in their role as business customers.

So, Sybase gives us a great head start in the mobile solutions arena that we will capitalize on not only by providing the unwired platform itself, but also by supplying our customers with mobile applications for all their employees and customers, either ourselves or through partners building on our leading platform.

And finally, Sybase helps us accelerate our innovation in in-memory computing.

This is another major area of investment at SAP which we believe can be a true game-changer.

We introduced a new SAP product called High-Performance Analytics appliance at SAPPHIRE NOW.

This next-generation analytical application, based on in-memory computing, was jointly developed with Intel and we are now joining forces with HP and IBM to deliver this solution as an appliance.

Since the announcement at SAPPHIRE, customer interest in this appliance has been huge, and we have now invited 20 customers, many of them blue-chip GEA customers, to pilot the product so we can bring it to our entire customer base as soon as possible.

In summary, we are beginning to see the benefit of our consistent portfolio and our approach to deliver breakthrough innovation in non-disruptive ways to our customers.

So, we are seeing excellent progress and innovation taking place in lots of areas.

And, at the same time, we are continuing our transition towards a lean, more efficient and fast R&D organization at SAP.

I am convinced that we can innovate more productively if we provide our employees with the right working environment, if we empower them to take on more responsibility and if we involve customers into all development processes as early as possible, which we are doing now.

On a final note, I am very happy to announce that Angelika Dammann has joined us from Unilever beginning of July.

She will be the leading global human resources function and serve as SAP's labor relations director.

Bill and I and the entire board are confident that Angelika's global experience and understanding of the dynamics needs in our diverse employee base globally.

We have found the perfect champion for our employees and for our future.

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

(Operator Instructions) Michael Briest, UBS.

Thank you very much; good afternoon, guys.

Just on the comments you made on Europe about conditions deteriorating a bit through the quarter, the license number was weaker than Q1.

Can you talk a bit about June and whether you saw the slippage that other companies have talked of, and whether any of that business has come back in July, and that's behind your confidence for the second-half recovery?

Sure, Michael, thanks for the question; this is Bill.

You're absolutely right.

When we did see the deterioration in the license, it was in June.

It actually came in the back end of June.

And the number one common denominator, if you want to break it all down for Europe, is deals greater than EUR3 million did not happen in Europe.

In fact, of the large deals we had globally that were EUR3 million and above, none of them happened in Europe that were perpetual recognized deals in the quarter.

It is important, though, to balance the message on Europe to point out a couple of factors.

One, we did have some good subscription activity.

Jim talked about Bayer as an example in Europe, which was very nice.

And there were a few others that were sizable transactions that will be recognized ratably.

And furthermore, the pipeline that we saw not come to closure did not disappear.

It actually is more of a postponed pipeline, which is different than the scenario we all saw unfold between 2008 and 2009, which is why we remain cautiously optimistic on Europe in Q3 and second half.

Are you looking for licenses to grow in the second half, in Europe?

Yes.

And then could I just ask one on the margin?

I appreciate there was some one-off severance costs of maybe 80 basis points or so, but margins for the first half are flat year on year.

What is going to drive the expansion in the second half?

Thanks.

First of all, Michael, if I look into the performance of the first half regarding our operating expenses, then of course we have to acknowledge that we have a currency drain on the expense side.

Expenses, operating expenses in the second quarter, increased by 4% at constant currencies.

And keep in mind, we always said, beginning of the year, when we provided our margin outlook for the full year, that the margin expansion would be realized in the second half of the year.

We said that, according to the business progress we see, and we saw business progress, we saw growth again on the software side and software-related service side, that we would invest in sales and marketing, as I indicated in my short presentation.

And I want to draw your attention to the pages two and four, five in the press release, where we clearly lay out the items which are not impacting the run rate going forward.

And if you look to the margin side, on a quarter-by-quarter basis, only the second quarter you see that the margin is more or less flat.

There you take out all the restructuring elements back and forth.

If you look to the half-year -- and by purpose, I do not introduce any additional new non-GAAP measure here.

But, if you do the math, you will figure out that in the first half of the year, we increase our margin by 90 basis points.

Do the math, and then you figure out that from that angle, if you eliminate all this stuff which is one-time, if you look to severance expenses and other, as we indicated, you will see and calculate a margin increase of 90 basis points.

So, from that angle, we have a good basis coming out of the first half of the year, and with growth coming in the second half we are confident that we will deliver on our margin target for the year, and that's 30% to 31%.

Okay, that's very clear; thanks, Werner.

Ross MacMillan, Jefferies.

Thanks; so, Bill, I understand your comments on Europe, but that's striking growth in the Americas.

Can you just talk to what's really driving that growth?

Is it primarily Business Objects and the SMB products, or are you starting to see larger transformational deals?

And, do you think, if that latter is true, is there scope for that to return in Europe in the second half?

Thanks.

Yes, thank you very much for the question, Ross; first of all, all of the above.

In the Americas, we clearly saw a return of the larger deals.

A lot of those deals were transformational deals, and some of them came at the expense of the competition, which was also particularly enjoyable.

I would also like to cite the fact that Business Objects and the sell-in to the line of business executive was a stated strategy in the Americas, and it's absolutely working because the competition picks off line-of-business executives under the radar of the CEO.

Now we have a coverage model that enables us to both cover the line of business as well as the CEO to align the value life cycle message that we drive at SAP for the entire enterprise.

So that was big.

And yes, a larger portion of the North American revenues in particular.

This is true everywhere, but really true in North America, are going Business Objects largely at the expense of Hyperion knock-outs and just Hyperion wins.

The other piece is focus on products like CRM, like supply chain, discrete focus on HR.

So we have actually, in the coverage model, contemplated this whole focus on the product, the line of business and the enterprise.

And those are really the three things that are leading to transformational deals in the Americas.

Naturally, any best practice that happens there will be rapidly replicated in other parts of the world.

And, yes, I do see large transformational deals that did not happen in Europe in Q2 that will happen in the second half, and including in the third quarter.

So I'm really feeling very, very good about the health of this business, more so now than in a long, long time.

And maybe I can add a few comments from customer behaviors.

We do see a change in them that growth is on the agenda.

Last year, they were looking for ways to save costs, and that is happening globally, even in Europe.

The conversations in Europe are about growth.

So I think it's a matter of timing.

These companies are in a global economy.

They compete against Asian and American companies, and they see Asian and American companies move themselves forward.

So, why do they choose SAP on the strategic choice?

Well, first of all, more than eight out of 10 choose SAP, and I think it's because of the consistency in the infrastructure.

They see a business suite which is running the core business which has very high consistency on data and processes, high level of integrity and is open for innovation on the side or on top, which gives us the opportunity to bring in-memory computing, which all customers really like the idea about, how can we bring in-memory computing to them without disruption.

And of course they see the opportunity for the on-device, the Sybase link to SAP.

So quite exciting conversations in all regions, even though the Europeans don't necessarily move the strategic deals forward, short-term.

Maybe just a follow-up, if I could.

Werner, it's helpful that you have guided now with Sybase.

I noticed in their June report that one of the reasons they drove such strong earnings was that they actually had a sequential decline in R&D.

I was just wondering, as you built your model out, to what extent are there cost rationalizations built into your assumptions for the combined margin structure this year?

Thanks.

I think we haven't built in any synergies, neither on the costs nor on the expense side.

We only know that we will have some expenses related to some integration activities on the back-end side, and that's all what we have included so far into the combined guidance for SAP, including Sybase.

So, no revenue nor cost synergy for fiscal '10?

Right.

Okay, thank you.

Thank you; next question, please.

Mohammed Moawalla, Goldman Sachs.

Bill, can you perhaps talk through some of the dynamics in the emerging markets business as you did for, say, the Americas and Europe?

And do you think the growth rates that you are doing right now are sustainable in the coming years?

Yes.

First of all, thank you for the question, Mohammed.

I would first of all say that we have been investing over the years in BRIC.

We are well known as the big-name market leader in our category, in Brazil, Russia, India, China.

If you look at Brazil, it remains just a beautiful market for SAP, growing nearly 100% year-over-year.

Frankly, the other BRIC countries this quarter did not exhibit their historical growth rates.

We expect that to return in Q3 because, when you look at the first half of overall, Russia was near 90% growth, Brazil was 90% growth, the BRIC countries in total for the SAP AG Group was over 40% year-over-year.

So we are counting on this to continue.

The pipelines are really strong.

One of the things I would love to do sometime is give you a demonstration on how we are running SAP off of handheld devices, looking at all of the data points of our pipeline in-memory using real-time analytics, and I can tell you that the pipeline is really building nicely and it's in really good shape in the BRIC, really nice shape.

Great, thanks.

Thank you; next question, please.

Philip Winslow, Credit Suisse.

Hi, guys, good quarter.

Two quick questions for you.

First, Werner, I wonder if you could give us an update on enterprise support acceptance.

Obviously, you gave us some pretty good metrics last quarter.

Just curious what you are seeing there again here in Q2.

And then also, Bill, in terms of the sales force, obviously you mentioned feeling good about the forward pipeline in the Americas, and potentially adding some heads there.

How should we think about headcount growth in sales and marketing as the pipeline for license revenue continues to grow?

Go ahead, Werner.

Let me take the enterprise support question first.

I think, if you look to the business with new customers, the share is now 21% versus 17% in the second quarter of last year, I think roughly 90% go for enterprise support.

And overall I think it's around 80% of all of our customers going for enterprise support.

On top, I think we have a lot of traction for MaxAttention, our premium support offering, which also grew nicely quarter over quarter and year over year.

Phil, to add to Warner's remarks, in talking about hiring, when I made the opening remarks, if you noticed I was very careful to say leverage investments that we've already made.

Because we knew, if we were going to get the return on any coverage investments we would make in 2010, you would have to make them in the first half so you can ramp these people up and leverage that investment in the second half.

So we are going to be lifting and shifting resources as Jim and I have worked on making the Company more lean, more efficient, along with the Board, getting more assets that are smart in front of the customer that are already on the payroll versus hiring net new ones.

We are managing the cost side of the equation really carefully.

We obviously want to do even more on the top-line growth and even more on the margin expansion so we can fulfill our double-digit growth ambitions as well as our mid-term 35% margin.

So we take our conversations with you really seriously.

Great, thanks, guys.

Thank you; next question, please.

Knut Woller, UniCredit.

Basically, two questions, if I may.

First, on the acquisition side we have seen now the Sybase acquisition, and I just want to clarify about your acquisition strategy going forward.

Should we expect basically the same digestion phase we have seen with Business Objects before you do a larger acquisition?

Or, are you going to speed up the inorganic growth in future?

That's the first part.

And then the second regarding the other operating income in this second half, we have seen a high burden come in likely, I think, from hedging effects.

Now that we have seen the currency trends leveling out at some level, should we expect that the other operating income will be slightly more favorable for you in the second half of the year?

Knut, Jim Snabe here; let me talk about the acquisition strategy and make sure there's no confusion around that.

We have just today completed the acquisition of Sybase, and we will put a lot of attention from the Board, from the whole Company in making sure that that acquisition is successful.

So we don't have a large acquisition in the pipeline right now.

And also, I would like to re-emphasize the importance of saying that we will run Sybase as a separate company and leverage the IP opportunities that we have across the two types of companies here, who have, actually, a very different market in mind.

And so the top-line synergies we have in mind are, I see, very important for us, and we will make sure that that executes.

That being said, we have now demonstrated with Business Objects that we can acquire big, and Sybase hopefully becomes the next example of that.

So it means we have the option of acquisition in our strategic tool sets also going forward.

But you have to be very carefully looking at the way we do this.

We go for top-line synergies.

We are not trying to consolidate the past; we are trying to move ourselves strategically forward.

And we have said that we want to double our addressable market.

We'll go in the on-demand cloud market, we'll go in the on-device market, and we will accelerate in-memory computing, and those three categories will help us double the addressable market.

So that's basically the situation -- a lot of focus on Sybase, and let's see where it brings us.

And I will take the other question, and Knut, I assume you referred to non-operating income, and not to operating income?

Yes, that's right.

Where we have the currency impact from foreign currency gains over foreign currency losses.

And if you look to this EUR86 million, EUR74 million roughly is related to currency from our business at SAP.

And if you look to it and nail it down, you have three areas.

The first one is Switzerland, where we have one major contract with one of our customers, which is in euro currency, which, of course, leads on a quarterly basis to a foreign currency gain or loss.

And this time, we had to realize the loss.

We had quarters where we realized a gain.

So this is something which will run into our P&L on a quarterly basis over the term of this contract.

At the end of the term of the contract, this should balance out completely, so there is nothing left as a gain or as a burden.

And this is roughly half of the amount we are talking about.

Then, we have an impact coming from Venezuela.

We have wrapped up the situation already last year, but there are fluctuations in the parallel market rate which we have to record, and that's the second part.

And the third part are simply cash flow hedges on the level of SAP AG.

So there we will see -- depending on the currency movement, fluctuations -- gain over losses also in the next quarters.

I cannot predict where the currency will move to, currencies will move to, over the next quarter.

We had dramatic changes, if you look simply to the second quarter, between 3% and 19% with regard to our top currencies all going in the same direction now.

With the euro strengthening again in the second half, I think we have a good chance that this income or this expense will go down and maybe we come up with an income in this line item for the third quarter.

Great, thanks very much.

Okay, thank you, next question, please.

Adam Wood, Morgan Stanley.

Hi, thanks for taking the question.

First of all, on the order entry, I think you have commented during the day that you saw 20% growth on the order entry.

Could you just clarify whether that's [states] or whether that's ex-currency?

And maybe if you could clarify a little bit on Europe, putting that 20% in the context of the European business; is Europe growing more quickly or more slowly than that?

And then just coming back to Sybase, we've kind of talked around the synergies we might be expecting from the business.

If we proportionately look at this versus Business Objects, is there any reason why the top line in cost synergies should be materially different from the ones that we were expecting when you did the Business Objects acquisition a few years ago?

Thank you.

So, first of all, on the order entry, it is in euro; and you did hear it correctly, at 20%.

And I'll let Werner give you his thoughts on Business Objects and Sybase, but they are very different companies, and they have a different profile.

But the one thing they have perfectly in common is they are breakthrough in terms of their innovation cycle.

At the time the world was ready to form a BI standard, BI in analytics, and I think in large measure we are doing that now with Business Objects.

Right now, with Sybase, the world is ready to form a mobile standard.

And frankly, if you look at CEOs out there today, their biggest challenge is connecting that virtual boardroom to the shop floor.

How do you run business processes end to end, getting all knowledge workers in the enterprise in the game where they can make decisions in real time based on their role?

Nothing will do that better than SAP and Sybase in combination.

The other thing that's interesting is the geographies where we are strong and where they are strong.

One that we both want and they are strong is China, as an example.

And then, when you look at the industries, they are particularly strong in financial services and telecommunications, as an example, 46 out of the top 50 banks, 850 to 900 telco carriers.

Those are industries we are very interested in.

So the final aspect is the cross-sell, and all this remains to be monetized, I realize that, but we see tremendous opportunity on the business intelligence, the analytics side, the mobile application side.

And obviously, we recognize that have a very healthy core business, and we are going to do nothing to stand in the way of them continuing to grow that.

In fact we will make sure, over time, that plays well with our suite.

So all these factors combined will spell out a strong growth story.

Werner and the Board itemized that in the 9% to 11% guidance.

So it's not a direct correlation to Business Objects by numbers, but it's obviously a very strategic company for us.

Yes, and if you look to the synergies, priority here clearly has synergies on the top line.

That's why we made the tender offer for Sybase and why we acquired Sybase.

We will realize some synergies also on the expense side, but again the majority will be on the top line, and we will concentrate on really capturing the synergies on the top line first.

It is different than with Business Objects, where, if you remember, we had a situation where Business Objects' operating margin was far below ours and we had to do everything in order to bring this up to our level.

This we have already, via the acquisition as of today.

And this is the justification for really focusing on the top line and not looking to the cost side of the house.

Because if you would simply look to the cost side of the house, we would diminish our aspirations on the top line we want to get out of this acquisition for the Group.

Thanks, and maybe just a quick follow-up on the European pipeline.

Is the European pipeline materially different from that 20% for the Group that gives you more confidence looking out for H2, or is it kind of in line with that?

It's in line with that.

And again, we are cautiously optimistic on Europe and we expect Europe to grow in the second half of this year.

And one of the things that you should know is, when you look at the countries operating in Europe, whether it's Germany that has high double-digit growth now near 20%, you look at UK, you look at Spain, you look at Sweden, you look at South Africa, you look at Finland, you look at Greece, all these markets are growing in double digits.

So we don't have any macroeconomic scenario that's going to pull down our business model.

What we do have is a timing issue on the larger transactions, in particular in Q2.

And if you remember the media attention on Europe at that point in time was pretty high, which is indicative of what other companies realize, from what I can read, where they had difficult times in June.

So even Greece grew, and we remain optimistic on our business.

Great, thanks very much.

Thank you; we have time for one final question.

Jonathan Tseng, Merrill Lynch.

Just a quick question on Business ByDesign, what progress you've had on the channel structure.

I guess you have been switching more towards trying going through resellers for this product now.

Have you had any feedback from them, and can you give any stats or sort of metrics of how much sign-up you've had and what progress you have there?

Thanks.

Yes, so obviously, Business ByDesign is an ideal infrastructure for an ecosystem play, and we are already very committed to the ecosystem approach, and more than 90% of the new deals we do in SME today already is an ecosystem-based, channel-based business.

ByDesign -- we've focused a lot on the infrastructure.

I think a lot of you guys were very focused on making sure that we could make money on ByDesign, so we wanted the infrastructure perfect.

We are now there, and we have the benefit of having worked with 100 customers, as well as partners, in the meantime.

So now what we will do is we will bring it to market starting Monday -- sorry -- Friday this week, end of July and, with that, having a volume-ready product there.

And we will not just go for existing partners.

We will look for other partners as well who have pure volume business today and who can benefit from an on-demand and very mobile-capable infrastructure going forward.

We still have to learn a lot in this business, so it's too early to say where will this go, but let there be no mistake; we certainly want to run this as a very solid business also from a profitability point of view.

And at the end of the day it's all about getting the volume that can drive the business on ByDesign.

Thanks very much.

This concludes the SAP Q2 2010 earnings call for today.

Thank you all for joining, and good bye.

All right.

Thank you.

Thank you for joining and have a pleasant day.

Good bye.