Despite Oracle’s recent slew of acquisitions to build up its applications business, SAP is still expected to outperform its archrival in this highly lucrative segment when it releases its third-quarter earnings Thursday.

“The [third-quarter] figures will substantiate our claim that we are outpacing Oracle,” Leo Apotheker, a member of SAP’s executive board, told reporters at a conference in Athens, Greece, Monday.

In the third quarter, SAP’s business applications license revenue is expected to rise 10 percent to €540 million ($645 million) from €491 million ($588 million) in the year-ago quarter, according to analyst Brendan Barnacle of Pacific Crest Securities. License revenue is a good indication of a company’s strength as it can convert this revenue to future service revenue.

In comparison, Oracle’s applications license revenue was $127 million in the third quarter of calendar-year 2005, which was technically Oracle’s first quarter of fiscal 2006 (see Oracle Sales Fall Short).

Mr. Barnacle said it will be “pretty easy” for SAP to surpass Oracle’s $127-million figure.

Business applications refer generally to software used by companies to help track different functions of their businesses such as customer relationships, accounting, and supply chain management.

Walldorf, Germany-based SAP is the market leader in business applications, with a 21 percent market share, according to AMR Research. Redwood Shores, California-based Oracle is No. 2 with 9 percent.

But Oracle has been on an acquisition binge, buying companies like PeopleSoft and Siebel Systems, with an eye toward one day dominating the applications segment (see Oracle Buys Siebel for $5.85B). Oracle still earns most of its revenue from its database business.

Since Oracle’s acquisition of PeopleSoft and JD Edwards, SAP has countered with its Safe Passage program launched in January designed to lure Oracle customers. Since the launch, SAP has managed to poach 28 Oracle customers over to its side out of a total of 26,000 Oracle applications customers.

SAP’s shares were down $0.31 to $42.95 in recent trading.

Profit Boost Seen

SAP will announce its quarterly results before the Frankfurt stock exchange opens at 7 a.m. Thursday local time (10 p.m. PDT Wednesday). SAP’s net income is expected to rise 19 percent to €331 million ($396 million), or €1.09 ($1.30) per share, from €277 ($304 million) in the year-ago quarter, according to an estimate of 28 Thomson Financial analysts.

Meanwhile, analysts expect revenue to rise 7 percent to €1.9 billion ($2.27 billion) over the year-ago quarter.

Mr. Barnacle said analysts will pay particular attention to guidance. Wall Street sees the company’s full-year revenue rising nearly 14 percent, while the company has forecast an increase in the range of 10 to 12 percent.

“I think they will reiterate the poor guidance, which will be a disappointment to people,” he said.

Equity research firm Fulcrum Global Partners is expecting a strong quarter. One reason is the dislocation in the enterprise resource planning (ERP) space following the PeopleSoft acquisition, said Sam Saunders, a research analyst with Fulcrum. Oracle acquired ERP vendor PeopleSoft for $10.5 billion in December 2004.

“Oracle’s organic software license growth is pretty anemic, whereas SAP has been able to put up some pretty good growth by 10 percent over the last couple of years,” said Mr. Saunders.

Growing Organically

While SAP is trying to grow organically, Oracle has been focusing on acquisitions, spending about $18 billion in 2005.

SAP is expected to do well in the Americas, which will be the reason for its expected solid performance this quarter, said AG Edwards analyst Yun Kim in a research note.

Mr. Kim also said the sales momentum for SAP’s customer relationship management (CRM) business is accelerating since Oracle’s acquisition of CRM leader Siebel. Excluding Siebel’s acquisition, Oracle’s market share in the CRM space is 3 percent compared to SAP’s 15 percent, according to AMR Research. Siebel’s market share in this area is 12 percent.