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in Q2 2006
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in H1 2006
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  Letter to Shareholders  
Karl-Heinz Streibich   Karl-Heinz Streibich, Chief Executive Officer
Engineer. Chief Executive Officer since 2003
Darmstadt, Germany

Dear Ladies and Gentlemen,

Software AG continued on its growth path in the second quarter of 2006. The increases in sales and earnings emphazise the Company’s focus on sustained growth. Our strategy is showing a rising effect, above all in our licensing business. Both of our business lines – Enterprise Transaction Systems (ETS) and crossvision – generated impressive growth rates during the second quarter as well as in the entire first half of 2006.

A good start for crossvision
The past few months have been characterized by the particularly positive response to crossvision, an SOA suite which we introduced in February. The broad market interest in this new product is evidence of the clear focus Software AG places on customer requirements when developing products. Companies and institutions prefer options that allow them to open, connect and modernize existing applications rather than having to replace them. The aim is for IT landscapes to lose their monolithic structures and adapt flexibly to new process workflows. This is exactly where crossvision comes into play. Our innovative model for service-oriented architecture (SOA) allows companies to better align their IT systems with their business strategies providing them with competitive advantages.

SOA suite acknowledged by customers and analysts
In addition to the positive response from our customers, crossvision has also enabled Software AG to gain recognition among industry analysts. For the first time, Forrester Research, a renowned independent research institute for the IT market, has named Software AG a world leader in the category of Enterprise Service Bus (ESB), an essential component of SOA solutions. In the category of product strategy, Software AG achieved the number one ranking. This award proves that we are on a promising path with our SOA products and that we are not merely pursuing the right vision, but also the best.

Strong starting position for further growth
Modernization, integration and management of business processes are key factors of SOA. Software AG has specific expertise in all three of these fields. For SOA, however, mainframe expertise as well as XML competence is required – a combination that can only be found at Software AG.

Our aim is to become a leader in the global SOA market. SOA is not simply a fleeting trend, but represents a paradigm shift in information technology: SOA is regarded as the most efficient possibility for integrating heterogeneous IT systems. The significance of service-oriented architectures is also documented in a survey conducted by Capgemini, a management and IT consultancy firm, according to which SOA was named a top priority for 2006 by one in five companies. Software AG has already secured a number of large projects since the launch of the crossvision suite in mid-May. For the second half of 2006, we expect accelerated growth for this business line based on full availability of all products and an increasing average contract size.

Licensing revenues in our Enterprise Transaction Systems business line have grown substantially. This underscores our excellent market position and demonstrates the significance of mainframe applications for customers. A major part of all corporate applications and business data is stored on mainframe computers, which are and will remain a fundamental part of information technology due to innovative technologies and improved performance. We support our customers in further exploiting these valuable resources by providing powerful technologies for modernization and integration.

Collaboration and open alliances promote progress. Software AG’s network has gained a scientific component through the cooperation with Hasso-Plattner-Institut agreed upon in the second quarter. The Institute researches the fundamentals of architecture models for the provision of IT-based services. Together with Hasso-Plattner-Institut, Software AG will work on innovative IT technologies with an emphasis on the field of service-oriented architectures.

Karl-Heinz Streibich
Chief Executive Officer

  Interim Report Q2/06 (PDF)
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