SAP’s Miss – Market Slowdown or Market Shift?
SAP’s disappointing Q4 results raise the critical question as to what do they mean. Is it a company specific issue, or is it a reflection of a broader weakening of demand for enterprise software. We’re not going to go through the specific numbers since there are plenty of sell-side analysts who do just that, but with indicated Q4 revenues up only 7% that’s a sharp slowdown vs. year to year comparisons throughout the rest of the year.
We’ve checked in with a number of our industry contacts (systems integrators, market research analysts, as well as independent consultants and field sales) to get the benefit of their perception of market conditions.
Is it an indication of a slowing demand for applications software? It is a bit early to say for sure, given that Oracle’s November quarter results were a bit disappointing on the applications side as well, but our checks to date do not suggest a deterioration in the market. Furthermore a recently published survey by a leading brokerage house of 500 corporate IT buyers suggests the prospects for IT spending continue to be pretty healthy.
Is it an execution problem at SAP? SAP has generally been very effective in managing its sales execution during the past several years. We have no reason to think SAP sales force is any less effective than they have been in the past apart from the increased challenge of no longer being able to benefit from angst over Oracle’s acquisitions. If anything SAP's strategy to largely steer clear of acquisitions would suggest a greater degree of stability.
Is it a product problem? While some observers are busy critiquing SAP’s SOA capabilities and lack of an on-demand solution as a reason for the slowdown in their business, we do not see this as a significant issue for SAP from a competitive perspective, since we can make comparable criticisms of virtually any competitor in the market.
Or is it a reflection of changing competitive dynamics with rival Oracle? We resisted making this declaration six months ago or so when Oracle had its first big blow out quarter and SAP came up a bit light. However, at this juncture despite the fact that Oracle’s apps business was not as strong as expected in the November quarter and our view that SAP remains the powerhouse in applications, we now believe that Oracle’s success to date in its major acquisitions is costing SAP a significant amount of business. Another way to put it is that SAP is no longer enjoying easy wins owing to uncertainty and concerns over Oracle’s acquisitions and how they would support those products. In addition we think this is particularly relevant in the all important small and medium business market, which by all accounts represents the biggest growth opportunity.
One bit of good news for SAP is that Henning Kagermann will continue at least one more year as CEO, forestalling a much anticipated horse race between leading executive board members Shai Agassi and Leo Apotheker and the risks that one of these key executives will leave.
With many software companies reporting December quarter results in the next few weeks there will be a wealth of additional data points and qualitative commentary to help investors handicap the outlook. However, our view is that demand remains healthy and that while there are a variety of factors that impacted SAP’s results ranging from the effects of a weaker dollar, to inevitable execution issues, as well as an overly optimistic forecast, we think the evidence of the past year points to a visible shift in the competitive landscape.
Legal Disclaimer Nothing herein constitutes an offer or solicitation to buy any security. Readers are advised to review their own financial situation, risk tolerance, and investment objectives as to any investment. Information provided here is based, in part, from sources believed to be accurate and reliable, although no representations or guarantees can be provided as to its accuracy or completeness.Blue Atlas Management, LLC is our official business entity for consulting related work. In addition, we also have a website for those of you who are interested in learning more a little more about our services http://www.blueatlasmanagement.com/. Please feel free to contact us at jmendelson@blueatlasmanagement.com, with any comments or questions.
We’ve checked in with a number of our industry contacts (systems integrators, market research analysts, as well as independent consultants and field sales) to get the benefit of their perception of market conditions.
Is it an indication of a slowing demand for applications software? It is a bit early to say for sure, given that Oracle’s November quarter results were a bit disappointing on the applications side as well, but our checks to date do not suggest a deterioration in the market. Furthermore a recently published survey by a leading brokerage house of 500 corporate IT buyers suggests the prospects for IT spending continue to be pretty healthy.
Is it an execution problem at SAP? SAP has generally been very effective in managing its sales execution during the past several years. We have no reason to think SAP sales force is any less effective than they have been in the past apart from the increased challenge of no longer being able to benefit from angst over Oracle’s acquisitions. If anything SAP's strategy to largely steer clear of acquisitions would suggest a greater degree of stability.
Is it a product problem? While some observers are busy critiquing SAP’s SOA capabilities and lack of an on-demand solution as a reason for the slowdown in their business, we do not see this as a significant issue for SAP from a competitive perspective, since we can make comparable criticisms of virtually any competitor in the market.
Or is it a reflection of changing competitive dynamics with rival Oracle? We resisted making this declaration six months ago or so when Oracle had its first big blow out quarter and SAP came up a bit light. However, at this juncture despite the fact that Oracle’s apps business was not as strong as expected in the November quarter and our view that SAP remains the powerhouse in applications, we now believe that Oracle’s success to date in its major acquisitions is costing SAP a significant amount of business. Another way to put it is that SAP is no longer enjoying easy wins owing to uncertainty and concerns over Oracle’s acquisitions and how they would support those products. In addition we think this is particularly relevant in the all important small and medium business market, which by all accounts represents the biggest growth opportunity.
One bit of good news for SAP is that Henning Kagermann will continue at least one more year as CEO, forestalling a much anticipated horse race between leading executive board members Shai Agassi and Leo Apotheker and the risks that one of these key executives will leave.
With many software companies reporting December quarter results in the next few weeks there will be a wealth of additional data points and qualitative commentary to help investors handicap the outlook. However, our view is that demand remains healthy and that while there are a variety of factors that impacted SAP’s results ranging from the effects of a weaker dollar, to inevitable execution issues, as well as an overly optimistic forecast, we think the evidence of the past year points to a visible shift in the competitive landscape.
Legal Disclaimer Nothing herein constitutes an offer or solicitation to buy any security. Readers are advised to review their own financial situation, risk tolerance, and investment objectives as to any investment. Information provided here is based, in part, from sources believed to be accurate and reliable, although no representations or guarantees can be provided as to its accuracy or completeness.Blue Atlas Management, LLC is our official business entity for consulting related work. In addition, we also have a website for those of you who are interested in learning more a little more about our services http://www.blueatlasmanagement.com/. Please feel free to contact us at jmendelson@blueatlasmanagement.com, with any comments or questions.
posted by jcm at 1:38 PM
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