Technology No Longer Leading the Charge

By Renee Boucher Ferguson  |  Posted 2008-04-03 Print this article Print

Joshua Greenbaum, principal at Enterprise Applications Consulting, said there is no doubt SAP will continue to be a development company, but technology is not leading the charge, as it was several years ago.

"The issues in front of customers today are not about some new technology that they haven't heard about that they're going to have to adopt in the next five years to be competitive," Greenbaum said. "The most that market could possibly absorb is already in the market today. In that sense, Leo [Apotheker] is well-positioned. He fits the requirements for the market quite well."

But SAP has a lot riding on its growth strategy that, in large part, centers on the success of Business ByDesign. Announced last year, Business ByDesign is an on-demand, fully integrated ERP (enterprise resource planning) suite. Beyond its SAAS (software-as-a-service) status, Business ByDesign is also the basis for SAP's next-generation architecture.

"It's entirely model-based development, entirely services-based from the ground up. It's broken into a series of logical, relatively fine-grained, separately installable and purchasable components with a very modern, task-based user interface. And yet it's built on top of this very sophisticated data model based on the SAP Business Suite," said Shepherd. "It is the product of the future."

SAP forecasts a strong 2008. Read more here. 

It's also the revenue hope of the future-if not in its current form, then as the next-generation code base, according to some analysts. But SAP has also said that by moving to a volume-based business-a SAAS model, essentially-it plans to double its customer base by 2010 and increase its margins significantly.

At a Feb. 26 Goldman Sachs technology conference Kagermann said that through the planned decrease in spending around products and research and development-SAP will complete its investment in Business ByDesign this year-the company should be able to get to a 35 percent operating margin, closer in line to competitors Oracle and Microsoft.

"It's a question of timing," said Kagermann. "With our base business behind our investments, now it's about showing in -08 we can integrate Business Objects [acquired earlier this year] and improve their margin. I am confident in them." Furthermore, Kagermann said he expects that 2008 will be the last year for major investment in Business ByDesign development. "Given all this ... and we get our act together, then clearly we can improve our margin much faster than we have done in the past," he said.

In its fourth-quarter earnings report Jan. 30, SAP said its operating profit rose 2 percent, to 1.112 billion euros, or $1.65 billion. The company said its margins will creep up in 2008 to between 27.5 and 28 percent of revenue.

Following Kagermann's keynote, Goldman Sachs analyst Sarah Friar released a research note characterizing SAP's margin efforts as a reach, at best.

"A key area of focus for investors, Business ByDesign, remains on track in terms of spending, revenue goals and product readiness. SAP is taking a thoughtful approach to bringing the product to market country by country," wrote Friar. "We believe the current goals are quite a stretch, but in the event of a further slowing macro environment and its potential negative impact on core application sales, SAP can probably rein in some of the BBD investment to protect the bottom line."


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