SAP AG Q3 2008 Earnings Conference Call Transcript

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2008-10-28 14:15:18.0

Tags: Operating Margin, Business Objects, Call Transcript, SAP AG, Earnings, Basis Point, GAAP, Financial Accounting, Finance, Seeking Alpha, Operating Margin, Business Objects, Call Transcript, SAP AG, Earnings, Basis Point, GAAP, Financial Accounting, Finance, Seeking Alpha

Question-and-Answer Session

Thank you. [Operator Instructions]. Our first question comes from Ross MacMillan of Jefferies. Please go ahead with your question.

Ross MacMillan - Jefferies

Thank you. Just a question maybe for Werner first. The framework you've laid out to hit the 28% non-GAAP constant currency margin, it I think by my calculation implies about a 14% sequential increase in operating cost. And that's actually in line with the last couple of years. So given your hiring freeze and cost control, I was just curious, is that the right math? And if so, is that just conservatism that you've built in there? Thanks.

Werner Brandt - Chief Financial Officer

I think what we said is that if you look to the fourth quarter, we will reduce our operating expenses for the quarter by roughly ?200 million to achieve this 28%. But let me reiterate one point. We only can achieve this 28% if we deliver at least 20% growth on the SSI side.

You are right. This ?200 million roughly represents 10% of our cost base in the fourth quarter. And to be honest, we couldn't have delivered this or target this amount if we wouldn't have started early in the year to be very cautious with our spending. You remember, beginning of the year, we said that we would increase our workforce by 3500, and we added as per the end of September, roughly 1500, as I mentioned previously and we will not increase it significantly. So you see, our spending behavior in the first three quarters helped us now to target for this ?200 million reduction in the fourth quarter.

Ross MacMillan - Jefferies

And Werner, just to follow up. [indiscernible] the first nine months of the year, and I adjust my operating margin for currency and for the Business Objects integration costs that are running through the P&L and are not excluded, do you have that number, what the operating margin has been impacted by?

Werner Brandt - Chief Financial Officer

If you look to the first... to the third quarter only, we had integration costs for Business Objects of ?14.2 million. And this represents 50 basis points. So if you start with the margin at constant currency, it's 26.3 plus 50 basis points, it's 26.8. If you look to it from a nine month perspective, the numbers are, and here we have Business Objects for the first nine months of ?32.6 million. And remember, we had one other extraordinary spending item in the second quarter. This was the settlement with i2. This adds additional 24.4 and both adds up to ?57 million, and this represents 60 basis points. So if you look to it, again, from a operating margin non-GAAP at constant currency, it's 24% plus 60 basis points, it's 24.6.

 

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