Event Summary
1990s Enterprise
Resource Planning (ERP) juggernaut SAP AG is heading into the new millennium
looking like its old self, and its rival PeopleSoft is not looking too bad either.
Surprising many, enterprise software giant SAP pre-announced strong fourth quarter
earnings, saying pre-tax earnings had doubled the final quarter of 1999 after
a third-quarter profit warning. License revenue skyrocketed 40% to 800M EUR
($822.7M U.S.) in the fourth quarter and sales rose 25%, well above Wall Street
estimates. However, SAP did not break down the revenue among geographies or
product lines. SAP has heavily invested in its mySAP.com Internet-based software
system but there is no evidence it is contributing to the surge in software
sales. Meanwhile, PeopleSoft also pre-announced a strong fourth quarter, saying
it expects to beat Wall Street estimates. Earnings from recurring operations
are expected to be two to four cents a share. PeopleSoft's license revenue is
expected to grow 35% to 40% in the fourth quarter from the previous quarter,
but a reduction in service revenue of up to 5% will offset much of the increase.
PeopleSoft said revenue from enterprise software should rise 30% to 35% while
revenue from its recently acquired Customer Relationship Management (CRM) system
would grow 50% to 60% for the quarter from the previous quarter. Last week PeopleSoft
finalized its purchase of Vantive Corporation, its long-time partner for CRM
systems. Charges of $50M to $70M for the purchase will be reflected in fourth
quarter results.
Market
Impact
This chain of events should cause some ERP doomsayers to retract their sensationalistic
predictions aimed solely at attracting increased market attention. The factor
that caused ERP implementations' rush and incredible market growth of well over
40% in the years preceding 1998 -- the Y2K problem resolution -- turned into
a market nemesis during 1998/99. It was unrealistic to expect sustained high
growth for a prolonged period of time. The same holds for hastily declaring
the market dead when the market leader reports a growth of less than 20%, neglecting
the fact that, at the same time, some nimble, smaller players (IFS AB, Great
Plains, Symix Systems) have achieved stellar performances.
The
fact remains that the majority of ERP vendors have initially been taken aback
by a combined effect of the following major factors: the Y2K-caused market slowdown,
the Fortune 1000 market saturation, a bad reputation for exorbitantly expensive
and protracted implementations, and the market attention's shift to e-commerce
(B2B, B2C), supply chain management (SCM), client relationship management (CRM),
business intelligence, and other extended-ERP applications. We also believe
that the majority of vendors tackled those difficulties with appropriate, time-and-money-consuming
counteractions like developing more implementation-friendly and industry-tailored
products attractive to the untapped mid-market, as well as expanding product
functionality to cover above-mentioned hot trends, to name but a few. Fourth
quarter results from SAP and PeopleSoft as well as strong recent reports from
J.D. Edwards and Oracle Corporation demonstrate the market is on its way back.
We expect sales to return to full force by the end of the second quarter 2000.
Only the Baan Company continues to struggle, since its business situation remains
seriously aggravated in the wake of its CEO and CFO resignations earlier this
month.
User
Recommendations
The above mentioned title should be rephrased into 'Baan is (maybe) dead: ERP
is here to stay'. This does not however imply that both vendors and their affiliate
system integrators will not have to seriously put their current business models
under a magnifying glass. The 'gravy train' days of multi-year implementations,
with $2000 consultant's charges per day, and yet without producing obvious results,
are well behind us. Users should be aware of the fact that they need a reliable
back-office system in place in order to conduct their e-commerce business or
client relationship management. Therefore, we encourage them to aggressively
inform themselves about vendors' latest product offerings and vigorously negotiate
contract terms. Vendors' corporate viability remains a crucial factor in any
selection process, and it seems as though the most of major ERP players are
going to be around for a significantly long time to come.