Special Report: SAP results still boomingby
It's business as usual at CRM software giant SAP. Cracking quarter results? Check. Major customer wins? Check. Grudge against Oracle? Check.
By Stuart Lauchlan, news and analysis editor
It’s been another cracking quarter for SAP, but the German firm’s performance is overshadowed by its increasingly aggressive battle with Oracle.
Announcing its third quarter results, SAP claimed it had won in 85 percent of the 247 deals for which the two companies competed during the quarter. It cited retail giant Wal-Mart as a prime example with SAP kicking out installed Oracle-owned products.
Wal-Mart will implement SAP ERP Financials to replace some of its legacy software systems, including its Oracle JD Edwards enterprise resource planning applications, and integrate it with other internal systems. The first phase of the installation is planned for completion in 2010.
Wal-Mart selected SAP after a "thorough evaluation" said the firm. "Technology has played a central role in the growth and success of our business," said Wal-Mart CIO Rollin Ford. "We believe SAP's experience in helping global companies with their financial systems will bring more flexibility and scalability to our growing business."
For its third quarter ended 30 September, SAP reported revenue of 2.42 billion Euros, up 9 percent from the same period one year earlier. Net income was 408 million Euros, up 10 percent. Software and software-related service revenue for the quarter was 1.74 billion Euros, while software revenue was 715 million Euros, with year-over-year gains of 13 percent and 11 percent respectively.
Growth exceeded 10 percent in all three geographic regions: North America, Europe and Asia-Pacific. “Software and software related service revenues in EMEA were up 15 percent at constant currencies,” said SAP deputy CEO Leo Apotheker. “Germany’s growth of 3 percent was within our expectation, driven predominantly by SME (small and medium sized enterprises), but the rest of EMEA maintained its second quarter momentum by growing 22 percent at constant currencies.
“The performance in EMEA was well-balanced across all the countries. The standouts that I would like to point to were once again Russia, as well as France and UK. Also SME was again a strong contributor and growth driver for EMEA in the quarter. Key contract wins in the EMEA region were Barmer Ersatzkasse, Thames Water Utilities Limited, [Inscate] Management, Louis Vuitton Moët Hennessy and El Corte Inglés in Spain.
“The Americas region reported another strong quarter, with 15 percent growth in software and software related service revenues at constant currencies. The US grew 18 percent at constant currencies, while the rest of Americas was 6 percent higher. The performance in the rest of Americas was actually better than the growth rate indicates, as you’ll remember, we had an exceptional performance in Latin America in Q3, 2006, making for a very tough comparison.”
The number of new contracts increased 22 percent from the year-earlier period. New customers accounted for 26 percent of order entry. Midmarket customers represented 34 percent of the new contracts. The number of deals greater than 5 million Euros was 20 percent versus 33 percent a year ago whiel the number of deals less than 1 million euros was 46 pecent versus 36 percent last year due to increased sales to smaller companies.
Tit for tat
But hanging over the results was the shadow of the seemingly ‘tit for tat’ bidding war that appears to be in full throttle between SAP and Oracle. SAP CEO Henning Kagermann insisted that there was a difference in approach between the two firms strategies. Despite the size of the recent Business Objects offer, SAP was not in the game of buying its way to increased marketshare, he claimed.
“While the offer for Business Objects is for a much larger acquisitions than we have done in the past, the concept behind this acquisition remains the same, enabling our customers to benefit from an even richer portfolio of innovative products and solutions,” he insisted. “It’s not about acquiring customers, market share or maintenance.
“With the acquisition of Business Objects, we instantly become the market leader in a high growth area that we were not the leader in previously. SAP’s direction has always been clear delivering innovative and market leading products to our customers and profitable growth to our shareholders. In the end, our 2010 ambitions will be reached primarily through organic growth as organic growth remains the primary driver for growing of our businesses. SAP has shown that we can outperform the market with significant organic growth, and we will continue to do so.”
But since SAP has previously sneered at Oracle for making acquisitions that drive up its marketshare while insisting that it only made tactical, functionality-related acquisitions, it’s inevitable that there will be questions raised about whether SAP will make more moves akin to the Business Objects bid.
“Let me answer differently: timing is important,” said Kagermann. “We have indicated that SAP was not prepared [for such a deal] two years ago because we first wanted to deliver on our business process platform and SAP Business By Design. Our appetite this year was larger because we delivered both successfully. For me it’s pure strategic question. It’s a question of opportunity. It’s a question of strategic fit and it’s a question of [whether] you really can create value and not destroy value in bringing two entities together? That’s at the end what drives us.”
The other big development in recent months has been SAP’s emergence into the Software as a Service (SaaS) space with its SME-targeted Business ByDesign offering. This was launched after months of speculation in New York last month, but many questions still remain about SAP’s strategic direction in the SaaS space and its delivery schedule for the new offering.
“We have to launch this in different phases,” argued Kagermann. “It was a very important milestone to having the first client live which we achieved in September. The next one is end of the year. We want to come to the hundred plus clients. This is important because in the first quarter there will also be an upgrade of the software so we learn to upgrade seamlessly on the fly. Then we come to next year’s first quarter [when the goal is] to push the product so that it can run thousands in terms of performance. We will over the year improve cost of ownership.”
So with another solid quarter under its belt, where next for the applications market leader? Looking ahead, AMR Research analyst Bruce Richardson reckons that the firm has some clear goals: “Top priorities include continuing to push the power of the Business Process Platform - that is, the need for applications to be integrated with the supporting infrastructure - successfully launching the new Business ByDesign software for smaller companies, and delivering the 'business user' message.”
And maybe making Business ByDesign sound slightly less like they’re making it up as they go along…