SAP Remains Solid While Transitioning

SAP Remains Solid While Transitioning
P.J. Jakovljevic - August 23, 2000

Event Summary

According to a press release from July 20, SAP AG, the leading provider of enterprise business software applications, announced its results for the quarter ended June 30, 2000. In the second quarter, revenues rose 19% over the same period last year to E1.50 billion. License revenues grew by 23% to E554 million of which sales of, the leading e-business platform, accelerated to E261 million or 47% of total license revenues in the second quarter, compared to 22% in the first quarter 2000. Pre-tax profit in the quarter before charges for the employee stock appreciation rights program (STAR) increased 11% to E288; pre-tax profit including STAR decreased 22% to E193 million. Net income in the quarter decreased 18% to E116 million (See Figure 1).

Figure 1.

"Less than a year after its introduction, already accounts for almost 50% of total license revenues in the second quarter," said Hasso Plattner, Co-Chairman and CEO of SAP AG. "That clearly shows that our e-business platform is enabling an increasing number of businesses around the world to be part of the Internet economy. Nestle is one example. The company signed a contract that will put at the fingertips of over 230,000 Nestle employees. Another indication that SAP continues to extend its leadership is that over half of our sales this quarter were to new customers."

In the second quarter, revenues in the Americas rose 15% to E598 million. Sales in the Asia Pacific (APA) region were up 67% to E192 million while in the region comprising Europe, the Middle East and Africa (EMEA) revenues increased 13% to E708 million. Breaking out license revenues for the quarter: the Americas grew 33% to E215 million, APA were up 197% to E89 million and EMEA decreased 4% to E250 million.

"The sales strength of picked up further pace in the second quarter," said Henning Kagermann, Co-Chairman and CEO of SAP AG. "Our US organization has quickly refocused its efforts to take advantage of increased market demand. In addition, demand in the Asia Pacific region was particularly strong. In the second half, we will continue to reallocate resources in an effort to improve margins and reap the benefits of our healthy pipeline."

Market Impact

SAP seems to be back in business. While not quite reverting to its golden days of glory and now having Oracle breathing down its neck, the management should nevertheless be pleased with the revival of license revenue and reinvigorated success in The North American and Asia-Pacific markets. Despite its huge customer base and mind share created throughout the 1990s, SAP has had notable challenges over the past two years. The company belatedly recognizing its US image problem of not being flexible enough, eventually resorted to an internal restructuring and an external image renovation.

While SAP has so far struggled in its attempt to develop and articulate its image and strategy for new CRM and e-commerce technologies, it has recently been making moves in the right direction to remain competitive in the new economy. The company seems to be more focused on partnerships and working with other vendors that specialize in e-business and CRM software. However, this is a notable departure from its previous strategy and will require a significant mindset change.

Furthermore, since the major revenue drive appears to be attributable to (SAP's new tack is bundling ERP, CRM, SCM, business analytics, and e-business components and facilitating customers in building private and public trading exchanges) as opposed to its traditional breadwinner, R/3, SAP will face a challenge of 'additional' formidable competition from Siebel, i2, IBM, and Ariba (as if the competition from Oracle and other ERP archrivals were not enough!).

User Recommendations

SAP and Oracle users should not be overly wary of the corporate viabilities. Both companies are solid and will be around for a long time to come. Due diligence should be paid to satisfying customers' unique requirements instead. While selecting a strategic software partner is a challenging and risky undertaking, the positive news is there are more companies competing for your dollars. Nonetheless, one would be hard pressed to find a case where SAP should not, with a good reason, be included on at least an initial long list of vendors in a global ERP selection. The depth and breadth of's offerings are attractive.

SAP should be on a short list in any enterprise application selection process for enterprises with over $500 million in revenues within the following industries: chemical, oil and gas, pharmaceuticals, engineering and construction, aerospace and defense, high-tech, fast-moving consumer goods and retail, utilities, service providers, financial institutions, and public sector. SAP might not be a strong contender in a case of time- and/or budget- constrained ERP implementation with a narrow functionality scope (e.g., shop floor control, HR or financial module only), particularly for enterprises with less than $200 million in revenues, although remotely hosted Internet solutions may offer cost effective applications to small or mid-sized organizations.

Future clients are also advised to request the Company's written commitment to promised functionality, general availability date, price, length of implementation, and seamless future upgrades, particularly for recently announced partnered offerings. Users are also advised to consider both the maturity and the functionality of the product in their evaluations and make comparisons to competitive offerings. Use the existence of other alternative, e-procurement, marketplaces and CRM applications to leverage the best price. If your CRM strategy calls for a lower-customer-volume, transaction-oriented system, and you already have significant investment in SAP technology, then pursue the SAP options. However, do not hesitate to shop around. Improvements in products interconnectivity make going beyond R/3 a more viable option than in the past.

Customers should insist on a contractual timeframe for delivery of a solution, and seek reference sites (preferably in their vertical market space), which have been successful with the product suite. Each eBusiness component should be put through its paces using a well-documented set of requirements, scripted scenario demonstrations, and rigorous reference checking.

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