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 mySAP.com 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.