SAP Lowers Revenue Expectations

Event Summary

Enterprise resource planning vendor SAP announced on October 13 that it anticipates its 1999 revenues to be lower than initially expected. Following an analysis of third-quarter results, to be announced next week, SAP's board of directors said it abandoned expectations of a 20% to 25% increase in revenue and improved pretax profit margin of up to 1 percentage point. SAP's board said it is still hopeful the company can achieve revenue growth of between 15% and 20% for the year, even though third-quarter revenues are estimated at just 7%. SAP expects strong fourth-quarter sales for its portal software, which was launched last month.

Market Impact

We do not find this news to be a surprise. On the contrary, it reinforces the prediction we outlined in our research note on SAP in August 1999 (See TEC Technology Note: "SAP AG - ERP Leader with a 'New Dimension'", September 1st, 1999), where we predicted a decrease in SAP's growth rate. A number of factors have contributed to SAP's declining license revenues. The first is the over 12 month lag in delivering its CRM product suite. Second, a new version of SAP APO (supply chain demand planning and advanced scheduling product), which is due this month, is already more than 6 months late to market (See TEC Technology Note: "SAP APO: Will it Fill the Gap?", September 2nd, 1999). Third, the problems that some users experienced in early versions of some SAP vertical solutions (See TEC News Analysis article: SAP Sets up Apparel and Footwear Team), and the bad reputation for protracted and costly implementations in the past, had its share in contributing to SAP's lackluster 1999 performance.

User Recommendations

SAP's current hardships do not change the statement in our SAP note (See TEC Technology Note: "SAP AG - ERP Leader with a 'New Dimension'", September 1st, 1999) that SAP should be included on an initial long list for global ERP selection. SAP remains the ERP leader, and its strong resources give it the ability to overcome current obstacles much sooner than most of its competitors in a similar situation. However, existing and potential users currently evaluating SAP products, particularly its "New Dimension" suite of products beyond the core R/3 ERP system, will have to decide between their brand loyalty (which means waiting for a firm release date) and considering already available and fully functional products from other vendors.

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