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SAP Aggressively Going After SaaS, SME, Business Users

Posted on Thursday, Nov 1st 2007

SAP (NYSE:SAP) reported its earnings on October 18 for the third quarter of fiscal 2007. Its revenues were €2.42 billion up 9% y-o-y. Net income was €408 million, a y-o-y increase of 10% over €370 million last year. EPS was €0.34, up 13% from €0.30 in Q3 2006. Software and software related service revenues were €1.74 billion, an increase of 13% over €1.54 billion in Q3 2006. Pure Software revenues were €715 million, up 11% y-o-y.

As per the earnings call, SAP has reiterated that its growth strategy is to continue to grow faster than the market by expanding its addressable market. It expects stable growth from its traditional businesses of horizontal and vertical applications, and accelerated growth from the SME and business user segments of the business process platform. The Business Users, by the way, is an untapped base that SAP really wants to penetrate, to raise its adoption and usage in the enterprise customers.

Since my SAP and Enterprise 3.0 post, SAP in September unveiled Business ByDesign, its on-demand business software solution. It has spent €85 million on the solution which is targeted at the mid-size segment of the SaaS market. In the SOA product line, SAP has recently announced the latest version of SAP Discovery System.

Other milestones in the quarter have been its $6.78 Billion acquisition of Business Objects, its signing of a Global Enterprise Agreement with Apple, and winning a contract from Wal-Mart.

For the third quarter, SAP repurchased 6.2 million shares for nearly €250 million. SAP Executive Board canceled 23 million shares from treasury on September 7, 2007. On September 30, 2007, treasury stock stood at 42 million shares. For the next quarter, it expects to spend another €250 million on share repurchases, bringing the total spend to nearly €1 billion. Its stock is currently trading around $53 after hitting a 52-week high of $59.86 on Oct 1. Its market cap is around $65 billion.

In stark contrast to Oracle’s strategy, SAP’s does include SaaS and SME markets. SAP also does not have a database business which Oracle does, and often, finds itself in a rather distasteful situation of making Oracle rich by selling their product to its customers. As far as I or anyone else can tell, the only way out of this rut would be for SAP to acquire IBM’s database business, but there really is not much reason for IBM to sell. It’s rather unfortunate that the brilliant Hasso Plattner did not see the vertical integration coming …

Way below Oracle or IBM in market share, however, is a database company that is still independent, and perhaps one that SAP might consider acquiring. I am talking about Sybase (Nasdaq: SY), of course. It’s market cap is only $2.5 Billion, and while it would not offer an immediate market leadership, it is certainly a possibility for SAP to consider, now that they have signaled that large acquisitions are fair game!


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Is Sybase the only option other than IBM? Why not MySQL?

venky Monday, November 5, 2007 at 3:39 AM PT

SAP already owns a very viable database (MaxDB) which has a decent following. It will never be a market leader though, because, as with many of the other technologies they own, they do not plan to sell it to non-SAP customers.

FormerAnalyst Monday, November 5, 2007 at 5:27 AM PT