SAP's first half results, announced yesterday afternoon, came in at the lower end of expectations and the consensus of analysts is that the company has adopted a defensive stance to cope with changing market conditions.
The results showed revenue for the first half of 1999 had grown 17 per cent to €2.34 billion with net income sliding four per cent to €240 million. In the second quarter, revenue rose 13 per cent to €1.26 billion while net income declined seven per cent to €142 million.
Revenue growth was hardest hit in America where SAP saw an 11 per cent increase compared with 25 per cent in Europe, Middle East and Africa. Co-chair Henning Kagermann still believes SAP is on target to achieve its target 20 per cent to 25 per cent growth for the full year.
However, recent events in the enterprise application market are now spurring analysts to reassess SAP's position. Six months ago, most financial analysts said that SAP would ride the anticipated slowdown in licence sales, but today that is far from certain.
"They're still forecasting an aggressive revenue number - it will be tough with what they have," said Jyoti Banerjee, chief executive at vendor analyst TBC research.
"It's pretty clear they're in a holding pattern, we'll have to wait and see," added Brian Skiba, research director at financial analyst Lehman Brothers.
SAP is targeting its top 50 customers to undertake joint development for new functionality that SAP hopes to commoditise into product. This will move approximately 500 developers out of a pure R&D role into revenue generation.
"Ironically, we criticised Baan for doing this for five years through the Boeing relationship," commented Skiba.
Pricing is being changed to a role based model so that enterprises don't have to worry about large licence price tags, but can pay for the user's interaction with the software.
This will allow SAP to penetrate deeper into its customer base where at present it is only estimated to reach 20 per cent of all potential users. This will be done through mySAP.com, a portal based strategy, where functionality related to the role will be delivered using browser technology.
SAP announced it will provide industry specific portals for release immediately after Sapphire America in September this year.
"This is profound, it will allow users to take an incremental approach to additional licences as functionality is needed," said Skiba.
In addition, SAP hopes that by demonstrating strong sell-side e-procurement, it can persuade customers it is worth investing in the complex buy-side processes - an area where SAP believes it has a compelling offering compared with Ariba and Commerce One.
"It's open season in e-procurement, SAP could pull it off," commented Banerjee.
However, Kagermann acknowledged SAP is at least six months away from having an offering that is comparable to the main e-procurement vendors. It hopes to offset the competitive threat by persuading customers such as Chevron that SAP is a better e-procurement bet in the long term than Ariba - Chevron's current business to business software supplier.
"SAP thinks its top customers will all 'talk' to each other this way but it is not clear whether this is viable yet," said Banerjee. Similarly, SAP is nowhere near ready to compete in the sales force automation market, seen as key to its overall customer relationship management portfolio.
"Oracle has done a stunning job positioning itself as an Internet play, they (SAP) know it's a catch up thing," concluded Skiba.
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