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SAP Posts Strong Gains in Ambivalent Market

By Thor Olavsrud     Feedback

SAP continues to lead, and even grow were competitors are losing ground, but SAP hedges its bets on a recovery by planning for 'modest' revenue growth and continued cost containment.

The fourth quarter of 2002 was a good one for Germany's SAP ; for the first time it outsold arch-rival Siebel Systems in terms of reported customer relationship management (CRM) licenses, with 17 percent year-over-year growth for SAP versus Siebel's decline of 37 percent.

SAP also continues to lead the enterprise resource planning (ERP) market, posting strong gains of 16 percent versus declines of 18 percent and 34 percent from respective competitors PeopleSoft and Oracle.

But while analysts were pleased with SAP's growth they noted that its gains largely depended on its strength in the German and Japanese markets, which could lead investors to question the sustainability of SAP's growth.

"While numbers were strong, that was largely expected by the market and there is unlikely to be a major shift in consensus for 2003," said Deutsche Bank analyst Kevin Ashton. "Indeed, the market may choose instead to concentrate on the less positive side of the numbers, which was the extremely strong growth in high margin Germany. The U.S., on the other hand, while very strong in relative terms -- 16 percent year-over-year versus declines of 35 percent and 37 percent at Oracle and Siebel -- was perhaps a touch below the market's expectations. The 27 percent license revenue growth in Germany is surely very difficult to keep up, and according to market accounts, SAP makes the lion's share of it profits in this market. The other wobbly economy that saw strong growth was Japan, with licenses up 29 percent year-over-year. Here too, there are likely to be fears about the sustainability of this growth."

SAP still espouses confidence. It said Thursday that it expects to increase profitability and gain market share in 2003, though it qualified by adding that it expects to improve its operating margin by 1 percentage point "based on modest revenue growth, continued cost containment and customer buying patterns in line with normal seasonality."

Still, despite weakness in the Americas region, SAP remains the largest player enterprise applications vendor in the Americas, and it claimed about 50 percent of the worldwide market in 2002, growing from 41 percent in 2001. It also continued to make strides into Oracle's share globally.

"For the fourth quarter we continued to see the trend toward smaller deal sizes, but with customers making larger, more strategic commitments," said Henning Kagermann, co-chairman and CEO of SAP. "We believe these commitments are the result of our customers' willingness to engage in a relationship only with a partner they can "trust," meaning a partner they know can deliver the solutions to meet their mission critical business needs, one with financial stability, one who continues to innovate and one who offers a complete solution combined with strong technology solutions, services and support."

However, while Ashton said he expects to see investors boost SAP in the long-term, even without an economic recovery, he noted that it may not see much upward pressure in the short-term.

"Overall, then, a market that is unconvinced of an economic recovery is unlikely to push SAP much higher in the near term, not least as an Iraq war looms," Ashton said.

SAP posted earnings per share of euro 1.63 ($1.75) on net income of euro 509 million ($547 million) for its fourth quarter.

This article was originally published on January 30, 2003
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