To print: Click here or Select File and then Print from your browser's menu

This story was printed from silicon.com, located at http://www.silicon.com/

Story URL: http://www.silicon.com/research/specialreports/enterprise/0,3800003425,39122539,00.htm

SAP busts out its small business secrets
"It's all word-of-mouth" says Kagermann

By Matt Hines

Published: Friday 23 July 2004

Enterprise software maker SAP has reported second-quarter earnings that met its earlier projections, as the company increased sales in the US and worked harder on closing deals with smaller companies.

SAP said that net income for the quarter, which ended on 30 June, reached $305m, or roughly 98 cents per share. Those results represent a 14 per cent increase over the US$269m, or 87 cents per share, the company reported for the same period last year.

The company, which specializes in tools that help businesses with enterprise resource planning (ERP) and customer relationship management (CRM), said its revenue grew to $2.2bn for the quarter, a 9 per cent increase compared with the second quarter of 2003. Wall Street had predicted that SAP would generate $2.16bn in revenue, according to First Call.

SAP said its quarterly software license revenue rose to $609m, meeting previously reported estimates and representing an increase of about 15 per cent compared with the year-earlier period.

The software maker also broke out its performance in the small and medium-size enterprise (SME) segment for the first time, revealing that deals in that market are responsible for 28 per cent of its quarterly revenue. The company defines small and medium-size businesses as those with less than $1bn in revenue or fewer than 2,500 employees.

The figure seems to confirm many industry experts' beliefs that the company is increasingly interested in courting small customers as the enterprise sector slows.

When asked why SAP is finally choosing to put a number on the size of its non-enterprise business after keeping those figures under wraps in the past, Gary Fromer, senior vice president for SMB at SAP America, said it's a matter of dispelling the idea that his company is weak in the market segment.

"We've spent a lot of time trying to match perceptions with the reality that we've had success in SME," Fromer said. "We decided we needed to allow people to compare this segment of the business against pure-play competitors in the space."

He added that roughly half of all people using business software work at small and medium-size businesses.

Overall, the company's strong results are not a major surprise. SAP had reaffirmed its earnings guidance and detailed its preliminary second-quarter numbers two weeks ago, after rivals Siebel Systems and PeopleSoft released disappointing results for the same time frame.

In a conference call with analysts and reporters, CEO Henning Kagermann noted that the positive quarter was driven largely by an increased number of deals in the US where the company's license revenue grew to roughly $171m. Among the customers SAP added in the region during the period was beverage giant Pepsi, a former reference client for rival Oracle. In contrast, SAP indicated that it saw a decline in the number of deals it closed in Europe, the Middle East and Africa, compared with the second quarter of last year.

Kagermann also referenced SAP's relative stability in comparison with its competitors, specifically PeopleSoft and Oracle, which remain tied up in deliberations over the database giant's hostile takeover bid for PeopleSoft.

"We know our market," Kagermann said. "It's based on word-of-mouth confidence. We've seen weakness worldwide in some of our competitors, and we could argue that this has less to do with the market than with the strength of SAP."

Kagermann also confirmed during the conference call that SAP has not been trying to court other companies in hopes of being acquired. Rumours that the software maker was being put up for sale proliferated after SAP admitted earlier this year that it had engaged in preliminary merger negotiations with Microsoft.

"The topic you mentioned was discussed only with Microsoft," Kagermann said, when asked by a reporter if other suitors had been identified.

Matt Hines writes CNET News.com