BUSINESS IN THE NEW YEAR: EARLY NEWS

We not aware of anything in the early months of 2007 so significant to SAP that it would lead to a different view of the Group’s assets, finances, or income than at the end of 2006. However, there is some early news that underscores the positive progress we are making.

In February 2007, the Great Place to Work institute once again named SAP Germany’s best employer. For the third year in a row, we achieved the top ranking in the category for companies with more than 5,000 employees. Additionally, our comprehensive employee health management program won us the special prize in the health category.

Our Supervisory Board expressed its continuing confidence in SAP AG’s CEO, Henning Kagermann, and praised his extraordinary achievement over the years in driving the Group toward organic growth. The Supervisory Board resolved to extend his period of office to May 31, 2009. Henning Kagermann accepted the extension.

We also took various steps to further improve our business.

Expanding our Traditional Core Business
In January 2007, we announced a new version of the SAP All-in-One solutions building on the latest developments in SAP ERP and the SAP NetWeaver platform. The solutions leverage the power of an enterprise SOA to offer midsize customers – and partners that serve them – new levels of flexibility, simplification, and rapid deployment. They also provide streamlined business scenarios, enhanced analytical reporting, and integrated management of customer relationships.

In parallel, we introduced a new program that enables partners to quickly and efficiently update their existing solutions to the next version of the SAP All-in-One solutions – and develop new solutions. We market the new version of the SAP All-in-One solutions ourselves and through our partner ecosystem. Midsize companies and partners will be able, like customers of the newest version of SAP ERP, to continuously install future software innovations as enhancement packages inexpensively and without interrupting their business.

SAP Best Practices
Later in 2007, we will ship enhancements to our proven SAP Best Practices. They will include new preconfigured industry and cross-industry business scenarios with documentation, and deployment tools for faster implementation and additional coverage for countries and for industries, such as the media and telecommunications. SAP Best Practices offerings are based on our experience and that of partners, gained from decades of serving leading companies of all sizes in all industries.

Developing New Business with Smaller Midmarket Companies
In January 2007, we announced more details of our new approach to business software for smaller midmarket companies. Our new solution, code-named “A1S,” aims to fully exploit the advantages that enterprise SOA offers for business software. With A1S, customers and partners can rapidly adapt preconfigured business processes to fit their own requirements. We will market this offering as a trial solution, providing customers with a complete, personalized version of A1S to test before they buy.

The solution offers smaller midmarket companies a short time to value, minimum risk, and predictable cost. We will integrate e-learning and service and support in the product, which will be available in hosted and on-demand options. We will leverage the Internet and telesales to market A1S.

We believe that by combining a completely new product concept and an innovative business model we will gain access to new streams of potential revenue. Aside from investing in developing the product, we will invest in sales channels, process, infrastructure, and human resources, all oriented toward new customer relationships and a big, diversified partner ecosystem.

New Income Statement Structure
From the first quarter of 2007 we are restructuring our Consolidated Statements of Income to show potential new revenue streams more transparently. We will show revenue from subscriptions and other software-related services as an additional item as an element of software and maintenance revenue. This new item includes revenue from subscriptions, from software rentals, and from other software-related services. Subscription revenues flow from contracts that have both a software element and a maintenance element. Such a contract typically gives our customer the use of current software and unspecified future products. We take a fixed monthly fee for a definite term – as a rule, five years. Software rental revenue flows from software rental contracts, also with software and maintenance elements – but here the customer gets the use of current products only. Our other software-related services revenue includes revenue from our on-demand offerings, for example the SAP CRM on-demand solution, any future on-demand revenue from our new midmarket product, revenue from hosting contracts that do not entitle the customer to readily exit the arrangement, and revenue from software-related revenuesharing arrangements, for example our share of revenue from collaboratively developed products.

We are also renaming what was previously called software and maintenance revenue: This will be shown as software and software-related service revenue. Thus software and software-related service revenue is the sum of our software revenue, our maintenance revenue, and our revenue from subscription and other software-related services. In 2006 our total software and software-related service revenue was €6.605 billion.

The 2007 outlook discussion below uses this new income statement structure. The operating margin discussed in this outlook is the U.S. GAAP measure, not, as in previous years, our adjusted measure.