SAP Susses Out 2008

German enterprise software vendor SAP is getting off to a good start in 2008 by reflecting on its 2007 successes. According to full-year earnings statements released Wednesday, software and related service revenues for 2007 were 7.43 billion euro, an increase of 13 percent (17 percent at constant currencies) compared to 2006. Total 2007 revenues were 10.25 billion euro, an increase of 9 percent (13 percent at constant currencies). These figures contributed to an operating margin for 2007 of 26.7 percent, a slight decrease from 27.4 percent for 2006.

Partly a factor of the not-yet-finalized acquisition of business intelligence vendor Business Objects, the 2007 operating margin was also impacted by investments of approximately 125 million euro ($183.7 million) relating to SAP Business ByDesign, SAP's new on-demand, midmarket offering. Based on the company's desire to expand in what it considers a "green field," SAP plans to invest between 175 million and 225 million euro ($257 million and $330.7 million) this year in Business ByDesign.

Specifics aside, the company appears pleased with its 2007 results (which exceeded its revenue projections) and sees a continuation of that strong performance into 2008. "We expect new innovations like SAP Business ByDesign to help us capture tremendous opportunities in untapped segments in the midmarket, to augment growth going forward," said Henning Kagermann, CEO of SAP, at the company's press conference in Walldorf, Germany. "In addition, the recent acquisition of Business Objects makes us the clear leader in business performance optimization products. This will help us further penetrate the fast-growing business-user segment and will be another driver of growth as we move ahead."

Analysts seem to agree. "SAP [is] better positioned now than ever before" to drive new business, writes Stuart Williams, senior analyst for Technology Business Research (TBR). Market consolidation has helped SAP, in Williams' view. "Despite being the smallest of the four [enterprise software] leaders, SAP broke the 10 billion euro total revenue figure for the first time in fiscal 2007. The market consolidation gives SAP more power to drive [its] vision out to [its] partners and customers."

Williams and TBR believe SAP's ultimate strategy will lead to a fundamental change in the way businesses -- or at least SAP's customers -- approach the technology stack, rolling up the functions of ERP, CRM, and other discrete disciplines into smaller functions within business processes such as order-to-cash or procure-to-pay. "The business process focus plus the use of [a services-oriented architecture] will enable SAP to slip pieces of the Business ByDesign 'machine' into the on-premise large enterprise versions of its software," Williams writes.

Kagermann indicated in his remarks that SAP would not ignore opportunities to make strategic acquisitions during 2008, despite its focus on finishing the takeover of Business Objects and integrating that technology into its operations. Whether or not the opportunity presents itself, some experts believe we will see a slackened pace from the acquisition marathon that has characterized the past few years.

"Conventional wisdom says that SAP's acquisition of Business Objects, Oracle's buying BEA, and IBM's purchase of Cognos will initiate a new wave of high-profile software-market consolidation," writes Ray Wang, principal analyst with Forrester Research. "Business apps professionals can relax a bit, though, because we think the conventional wisdom is wrong. In a global software market that is growing at double-digit rates, vendors don't need to go through the headaches that come with super-sized acquisitions to support growth and satisfy investors."

Wang says we can expect small-scale acquisitions to continue as the major vendors round out their product portfolios. "Each vendor has different needs and priorities, so expect to continue to see each of the Big Four software vendors pursue their own distinct acquisition strategies."

Related articles:

SAP's Year-End Model Sports a Facelift
SAP Influencer Summit: The German giant's SAP CRM 2007 -- with a new user interface -- sneaks in under the calendar-year wire.

Business Objects Gives SMBs an Edge
New feature to the company's Edge series promises to address the financial concerns of midmarket companies.

A Shift in SAP's Growth Strategy: Buy Big to Get Bigger
The company's planned acquisition of analytics powerhouse Business Objects represents the largest in company history.

SAP's Midmarket Design
SAP Business ByDesign is the company's new on-demand midmarket product; much of its success hinges on SAP's channel strategy.

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