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An SAP-HP Partnership Coming In Mobile Enterprise Apps?

Posted on Friday, Apr 30th 2010

Last week, SAP (NYSE:SAP) announced its plans to buy TechniData, a German company that provides software to help businesses comply with environmental, health, and safety regulations. And this week, it announced strong first quarter results. Let’s take a closer look.

SAP reported first quarter revenue of €2.51 billion ($3.37 billion), up 5%. This marks SAP’s return to revenue growth on y-o-y basis after the downturn. Software and software-related service revenue grew 12% to €1.95 billion ($2.62 billion) while software revenue grew 11% to €464 million (€623 million). Net income almost doubled to €387 million ($520 million) or €0.33 per share from €196 million or €0.22 per share. The company ended the quarter with liquidity of €3 billion. Q4 analysis is available here.

Last year SAP performed poorly. This poor performance was attributed to not just the downturn but also the leadership of CEO Leo Apotheker, who was ultimately dismissed early this year. Bill McDermott and Jim Snabe were appointed as co-CEOs. According to Gartner, worldwide IT spending is forecast to increase 5.3% to $3.4 trillion in 2010. Worldwide software spending is expected to increase 5.1% to $232 billion in 2010.

During the earnings call, SAP said that its innovation is focused on three areas: on-premise enterprise applications with enhancements to Business Suite; entering the software-as-a-service (SaaS) or on-demand market with a volume-ready version of Business ByDesign by mid-year; and providing access to SAP applications on mobile devices. The comany is working to provide access across all leading mobile platforms, such as RIM, Nokia, Apple, and Google Android. It would be very interesting to see if HP’s acquisition of Palm leads them to striking a strong partnership with SAP in the domain of mobile enterprise applications.

SAP maintains its 2010 outlook. It expects full-year 2010 non-IFRS software and software-related service revenue to increase by a range of 4% to 8% at constant currencies. The stock is currently trading around $47.37 with market cap of about $58 billion. It hit a 52-week high of $52.73 on October 21.

Chart forSAP AG (SAP)

SAP has a tradition of organic growth and small tuck-in acquisitions to complement it. The recent acquisition of TechniData is in line with this trend. TechniData has around 1,600 customers with revenue of €65 million ($87 million). Both companies have worked together since 1997 on SAP’s own Environment, Health and Safety (EHS) Compliance software module.

But SAP does make large acquisitions if needed. Its most recent major acquisition was Business Objects for $6.78 billion, which made it a leader in the analytics space. Last year, it made some small acquisitions in the SaaS space – Clear Standards for on-demand carbon emissions management and SkyData to offer mobile versions of on-demand applications. With the launch of BusinessByDesign on a larger scale, SAP will be competing more aggressively with other SaaS companies such as Salesforce.com and NetSuite. A major SaaS acquisition would accelerate its growth in the SaaS market. Will the new management go for it?

May be. But an HP partnership around mobile enterprise apps may be a much more natural way for SAP to push its way into the modern world in 2010. If that happens, then Palm has just found itself a fantastic future.

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It will be interesting to see how SAP and the other tech giants deal the myriad of SMB’s entering this market. My company, Mendix, offers a flexible platform to put on top of existing ERPs. Rather than ‘dealing’ with ERP updates, our clients modify Mendix (a much easier task) which sits on top of SAP. Nice article, and I agree, it will be interesting to see how Palm and HP find synergies with SAP.

Eric Friday, April 30, 2010 at 7:56 AM PT