By Christopher Lawton And Archibald Preuschat
BERLIN—SAP /zigman2/quotes/203458330/delayed DE:SAP -0.31% AG's legal battle with American rival Oracle /zigman2/quotes/202180826/composite ORCL -1.47% Corp. weighed on its third-quarter earnings, with the German business-software giant setting aside an additional $60 million to cover potential liabilities in the case.
SAP reported third-quarter net profit of €501 million ($694 million), up 12% from €447 million a year earlier. But an increase to $160 million from $100 million in its provisions for a lawsuit filed by Oracle left SAP's results short of analysts' expectations, sending its shares tumbling.
In 4 p.m. composite trading Tuesday on the New York Stock Exchange, SAP's American depositary shares were down $2.81, or 5.2%, at $51.27.
Oracle has accused SAP of industrial espionage, alleging that a unit of the German company illegally accessed Oracle's intellectual property. SAP, which has offered to settle the case, has since shut down the unit, TomorrowNow.
The increase in SAP's legal provisions is just the latest twist in its acrimonious fight with Oracle. In a legal filing in August, SAP said it would accept responsibility for copyright infringement and pay restitution to Oracle. However the company said it planned to present evidence to show that Oracle overstated its claim that it suffered more than $1 billion in damages.
Earlier this month SAP said Oracle plans to call Leo Apotheker , newly appointed chief executive of Hewlett-Packard /zigman2/quotes/203461582/composite HPQ -0.47% Co., as a witness at the trail, which is scheduled to begin in federal court in Oakland, Calif., on Nov. 1. Mr. Apotheker was CEO of SAP from April 2008 to February 2010.
This week, Larry Ellison , CEO of Oracle, blasted Mr. Apotheker for the actions of the TomorrowNow unit. "A few weeks ago I accused HP's new CEO, Leo Apotheker, of overseeing an industrial-espionage scheme centering on the repeated theft of massive amounts of Oracle's software. A major portion of this theft occurred while Mr. Apotheker was CEO of SAP," Mr. Ellison said in a statement Tuesday.
James Dever , a SAP spokesman, called Mr. Ellison's statement a "sideshow," and said he was motivated by a "vendetta against Apotheker and H-P."
"SAP remains focused on the core issues of the trail, which is determining what is fair and reasonable compensation. These personal tirades are a distraction," he added.
Mr. Ellison also has criticized H-P's board for forcing the resignation of Mark Hurd, Mr. Apotheker's predecessor at H-P, who stepped down in August amid a scandal. Mr. Ellison hired Mr. Hurd last month as Oracle's co-president.
At SAP, meanwhile, software and software-related services revenue—a key barometer of its performance that reflects revenue from software sales, maintenance and consulting services—increased 20% in the third quarter to €2.32 billion, in line with market expectations.
"All of the regions reported growth in the third quarter, with particular strength in the U.S. and the emerging markets of Asia, Europe and Latin America," SAP Chief Financial Officer Werner Brandt said in a conference call.
Bill McDermott , SAP's co-chief executive, said on the call that SAP is in a stronger position than ever, adding that he is optimistic about growth prospects in the Europe, Middle East and Africa region, though SAP still operates in a "cautious environment" there. Three months ago SAP disappointed investors with a weak performance in the region.
In 2009, SAP suffered a slump in demand because of the economic downturn and axed roughly 3,000 jobs to cut costs by €300 million to €350 million a year. The company returned to growth at the start of this year.
SAP maintained its forecast that it would increase revenue from software and software-related services by between 9% and 11% this year from €8.2 billion in 2009. It continues to expect its operating margin to be between 30% and 31%, up from last year's 27.4%.
Write to Archibald Preuschat at firstname.lastname@example.org