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 mySAP.com, 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, mySAP.com 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 mySAP.com 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 mySAP.com at the fingertips of
over 230,000 Nestle employees. Another indication that SAP continues to
extend its leadership is that over half of our mySAP.com 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 mySAP.com 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 mySAP.com
(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 mySAP.com'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.