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CEO Ouster Latest Sign of Woes at CRM Leader

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Posted February 8, 2010 By Larry Barrett     Feedback

SAP CEO Leo Apotheker resigned Sunday after only nine months at the helm of the German software giant, a clear sign, according to analysts, that the company had lost its way.

SAP CEO Leo Apotheker resigned unexpectedly from his post this weekend, after the company said Apotheker and its supervisory board had reached a "mutual agreement" to not extend his contract.

Apotheker, whose tenure atop the business software giant lasted just over nine months, will immediately be replaced by co-CEOs Bill McDermott, SAP’s (NYSE: SAP) head of field organization, and Jim Hagemann Snabe, head of product development, SAP said.

The now-former CEO, who shared leadership with former co-CEO Henning Kagermann from 2008 until this past May, oversaw a nine-month span in which SAP's shares made only modest gains, the company reported lackluster sales and profits and watched arch-rival Oracle continue its unrelenting growth-through-acquisition strategy without sacrificing its own profits or revenue growth.

"The new setup of the SAP Executive Board will allow SAP to better align product innovation with customer needs," Hasso Plattner, SAP’s co-founder and chairman of the company's supervisory board, said in a statement. "The new leadership team will continue to drive forward SAP's strategy and focus on profitable growth, and will deliver its innovations in 2010 to expand SAP's leadership of the business software market."

Wide array of challenges for SAP

By appointing the company's top sales and product development executives to lead the company, SAP's board is sending a clear message not only that it still favors duality in the CEO suite but that it also wants the company to return its focus to new cloud-based products and jumpstart its flagging on-demand offering, Business ByDesign.

Further, SAP added CTO Vishal Sikka to its executive board and said that Plattner "will continue to play a strong role in advising the new leaders on technology and product development."

SAP has taken a lot of heat in the past year for the delays with its Business ByDesign offering, raising licensing and service prices during the worst economic climate in a generation and locking enterprise customers into expensive support services contracts at time when Software-as-a-Service (SaaS) rivals were providing similar products at a much lower cost and with less aggravation.

SAP partially addressed at least one of its customers' biggest complaints last month when it debuted a new tiered support model that allows companies to pick the support program (and price level) best suited for their specific needs.

Still, SAP shares shed another $1.69 a share, or 2 percent, to $44.26 in early Monday trading and are flat since July.

It didn't help that Apotheker's contract came up for renewal shortly after SAP reported a 12-percent decline in total sales for the year and a fourth quarter in which its software sales tumbled 15 percent from the year-ago quarter.

While virtually every company in every industry suffered from disappointing sales and earnings in 2009, Oracle managed to the buck the trend and post better-than-expected profits and a modest (2 percent) gain in software sales for the quarter -- a fact that surely irked SAP's board.

"Our view is that by letting Apotheker go after only nine months as sole CEO, SAP is acknowledging the depths of its current issues," JMP Securities analyst Patrick Walravens wrote in a research note. "These issues include a convoluted product strategy, loss of market share to Oracle, and trouble adapting to the cloud computing model."

Whether the return to the co-CEO structure and the addition of new blood to the board will lift SAP out of its current malaise remains to be seen.

"By elevating both the head of sales and the head of R&D, plus the promotion of the CTO to the executive board and the clear statement that co-founder Hasso Plattner will maintain an involvement in product development, this seems a carefully orchestrated move to shift the balance of power within SAP back in favor of product development," Piper Jaffray analyst Rajeev Bahl wrote in a research note, noting that Apotheker was the first SAP CEO to not have cut his teeth in the company's prodigious research and development group.

Apotheker served elsewhere in various capacities for SAP for more than 20 years.

"The SAP Supervisory Board thanks Leo Apotheker for his enormous contribution to the success of SAP ... and wishes him all the best for the future," the company said in a statement.

Twenty percent of the 15 analysts tracking SAP shares are recommending that clients sell the stock. Another nine analysts rate it a "hold" or "neutral" while only two are calling it a "strong buy."

Larry Barrett is a senior editor at InternetNews.com, the news service of Internet.com, the network for technology professionals.

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