SAP Disappoints?
SAP this week announced its preliminary 4th Qtr earnings, which give SAP a 4th Qtr yr over yr uptick of 8% for software (constant currency 11%) and '04 vs '03 for software of 10% (constant currency 13%). Total 04 vs 03 revenue is up 7%.
For the regions in the 4th Qtr, EMEA is flat, Americas up 26% (US up 19%) and APAC up 4%. Based on the presentation that SAP Brd member & CFO Brandt gave on 1/7/05 in NYC (see http://www.sap.com/company/investor/index.aspx), PSFT/JDE have been the big losers losing significant market share to SAP going from 25% market share to roughly 19% Oracle is also down from 18 to 15% (since Q3 '02). These are SAP's estimates, not mine, but they seem to be in the realm of possibility due to the hostile and long drawn-out battle btwn PSFT & ORCL. SAP also continues to make headway against best of breed suppliers as companies look to streamline their IT infrastructure.
While this appears to be very good growth for this dominant enterprise software company, it seems that the financial analysts were less then impressed. If one takes a closer look, there is some reason for concern. APAC is the fastest growing market today and a number of software companies are doing quite well there (e.g., Dassault) but SAP reported a paltry 4% growth - something is certainly amiss here. In EMEA, where SAP is virtually the defacto standard, there was no growth. Sure EMEA is not a booming market like Asia and there is the issue of currency, but still, SAP should have seen some growth here for at least its extension apps. Also, SAP has increased its operating margin by only 1% this year - nothing to write home about. Though it does match their guidance analysts today expect companies to exceed guidance, not match it.
So what is happening? SAP continues to capitalize on the ORCL-PSFT debacle and will continue to do so in 2005, so sales in the Americas should continue at an above ave. growth rate for base ERP-type functionality. The company is also starting to make some headway in the SMB market, but though volume of license sales may be high, the $ value of these sales will be porportionally lower and subsequently follow-on maintenance revenues will also be lower. One can also expect quite a fight for each and every sale in the SMB market as just about every ERP supplier today (and there are still too many) will be VERY competitive in their pricing. Extension apps such as CRM, SCM and PLM should continue to do well in SAP's installed base as SAP builds in more specific vertical industry functionality to match those of best of breed suppliers. Netweaver also has a lot of potential in the future, but exactly how much is still tough to gauge.
While SAP has a lot going for it, there is certainly reason for concern. '05 should be good as ORCL will have difficulty with the PSFT acq, beyond that, SAP may run into some problems. It will be important to follow adoption of Netweaver and how well SAP expands its business in the developing markets of Eastern Europe and Asia - these wil be bell-weathers for the future of this key player in the IT market.
For the regions in the 4th Qtr, EMEA is flat, Americas up 26% (US up 19%) and APAC up 4%. Based on the presentation that SAP Brd member & CFO Brandt gave on 1/7/05 in NYC (see http://www.sap.com/company/investor/index.aspx), PSFT/JDE have been the big losers losing significant market share to SAP going from 25% market share to roughly 19% Oracle is also down from 18 to 15% (since Q3 '02). These are SAP's estimates, not mine, but they seem to be in the realm of possibility due to the hostile and long drawn-out battle btwn PSFT & ORCL. SAP also continues to make headway against best of breed suppliers as companies look to streamline their IT infrastructure.
While this appears to be very good growth for this dominant enterprise software company, it seems that the financial analysts were less then impressed. If one takes a closer look, there is some reason for concern. APAC is the fastest growing market today and a number of software companies are doing quite well there (e.g., Dassault) but SAP reported a paltry 4% growth - something is certainly amiss here. In EMEA, where SAP is virtually the defacto standard, there was no growth. Sure EMEA is not a booming market like Asia and there is the issue of currency, but still, SAP should have seen some growth here for at least its extension apps. Also, SAP has increased its operating margin by only 1% this year - nothing to write home about. Though it does match their guidance analysts today expect companies to exceed guidance, not match it.
So what is happening? SAP continues to capitalize on the ORCL-PSFT debacle and will continue to do so in 2005, so sales in the Americas should continue at an above ave. growth rate for base ERP-type functionality. The company is also starting to make some headway in the SMB market, but though volume of license sales may be high, the $ value of these sales will be porportionally lower and subsequently follow-on maintenance revenues will also be lower. One can also expect quite a fight for each and every sale in the SMB market as just about every ERP supplier today (and there are still too many) will be VERY competitive in their pricing. Extension apps such as CRM, SCM and PLM should continue to do well in SAP's installed base as SAP builds in more specific vertical industry functionality to match those of best of breed suppliers. Netweaver also has a lot of potential in the future, but exactly how much is still tough to gauge.
While SAP has a lot going for it, there is certainly reason for concern. '05 should be good as ORCL will have difficulty with the PSFT acq, beyond that, SAP may run into some problems. It will be important to follow adoption of Netweaver and how well SAP expands its business in the developing markets of Eastern Europe and Asia - these wil be bell-weathers for the future of this key player in the IT market.
posted by John at
1:14 PM
2 Comments:
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