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Will SAP Open Its $7 Billion Wallet For SaaS In 2010?

Posted on Friday, Jan 29th 2010

This week, SAP (NYSE:SAP), the German enterprise software company, reported its fourth quarter and fiscal year 2009 results. Revenue exceeded the company’s target thanks to a strong fourth quarter. As the economy recovers, SAP also expects to return to revenue growth in 2010. Let’s take a closer look.

In the full fiscal year 2009, total revenue was down 8% to €10.67 billion ($15 billion) and net income was down 5% to €1.83 billion (€2.57 billion). Q4 revenue was down 9% to €3.19 billion or $4.8 billion. Net income decreased 12% to €727 million ($1.02 billion) or €0.63 per share. Analysts expected earnings of €736 million. Q3 analysis is available here.

Over the year, SAP reduced its overall headcount by about 4,000 full-time employees (FTE), to 47,600. Short-term liability decreased to zero as the company paid back its business objects-related debt, and SAP now has total liquidity of €2.3 billion.

Software revenue in Q4 declined 15% y-o-y to €1.12 billion but doubled from €525 million last quarter. Software and software-related service revenues were down 4% to €2.57 billion but up from €1.94 billion last quarter. For the full year, software revenues declined 28% to €2.61 billion. Software and software-related service revenues were down 3% to €8.20 billion.

By region, revenues from the Americas increased by 4% and APJ increased by 6%. EMEA declined 7%, but Germany increased 5% and the BRIC countries 46% in the fourth quarter.

SAP announced that it bagged significant deals with Deutsche Bank, Achmea/Rabobank, and Crédit Agricole, and its Financial Services business grew by 37%, Banking by 46%, and Insurances by 24% while the Public Sector business grew by 14% and Telcos 21%. SAP added that it signed deals with Pfizer, 3M, British Gas, and Hilti and that it had about 500 competitive replacements of business intelligence solutions in 2009.

In the SME segment, SAP has about 73,000 customers. SAP defines SME as business with 100-500 employees and revenue of less than $500 million. About 85% of SME deals are through the partner channel, and SAP aims for this to reach 100%. It has three products in this space, Business ByDesign, SAP All-in-One, and SAP Business One. Business ByDesign was initially launched in September 2007 for limited users, and it will be revamped and made volume-ready in mid-2010 at about €40,000 ($55,800) a year for a 25-user outfit. It will have a new user interface with real-time analytics and mobile support.

The SAP All-in-One solution is now available as a subscription-based hosted delivery solution, and the company is delivering Business One with Web 2.0 integration that features real-time embedded analytics and seamless mobile integration, including with the iPhone. It also announced SAP mobile CRM, for Windows Mobile, the iPhone, and the BlackBerry; this is powered by the company’s partner, Sybase.

Oracle, on the other hand, completed its Sun acquisition this week after the approval from the European Commission and outlined its strategy for Sun. To retain its existing customers and fight competition from Oracle, SAP said it will offer a choice between Enterprise Support with a full-range of customized services to cut costs and a lower-priced standard package with basic software backup. SAP has also delayed a price increase on its Enterprise Support for a year. Current enterprise support customers will continue to pay 18.36% of the licensing fee, which will gradually increase to 22% from 2011 to 2016. But is this move too late? asks Patrick Walravens, an analyst at JMP Securities in San Francisco.

Based on its strong fourth quarter performance, SAP expects full-year 2010 non-IFRS software and software-related service revenue to increase in a range of 4% to 8% at constant currencies. It expects growth to come from the BRIC and MEA regions and has increased its headcount in the MEA region fivefold over the past year. The stock is currently trading around $46 with market cap of about $55 billion. It hit a 52-week high of $52.73 on October 21.

With the new Business ByDesign service, SAP will be competing with other SaaS companies such as Salesforce.com, NetSuite, and SuccessFactors and should look at acquiring a SaaS company. SAP had said this past summer that it is ready to spend $7 billion on acquisitions.

Chart for SAP AG (SAP)

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