SAP CEO Forecasts Strong 2008

Buoyed by acquisitions and new business markets, officials with the software vendor expect huge gains in sales for this year.

After some potentially hairy turns in 2007 - from a massive infusion vestment in the midmarket with a new business model for its new on-demand suite to the potentially overpriced acquisition of Business Objects - SAP proved it's on solid ground with new investments.

The company posted heartening full-year 2007 results that included a 13 percent increase in software sales to $5.07 billion and another 13 percent increase for the year in software and software-related services revenues to $11.05 billion. Total revenues for 2007 increased 9 percent to $15.24 billion. But more importantly, SAP's guidance for 2008, particularly during shaky economic times, is just about booming.

SAP predicted overall sales would grow between 24 percent and 27 percent, including the acquisition of Business Objects, which SAP commenced to buy last October for $7.1 billion.

Company officials did make some concessions for the faltering economy. SAP said it expects 12 percent to 14 percent growth year-over-year for software and software-related services in fiscal year 2008 for stand-alone SAP, which was below street expectations nearer 13 to 15 percent, according to a Goldman Sachs research note Jan. 30.

"While SAP's guidance may be slightly more muted relative to expectations, it does assume a deceleration of organic growth for software and software-related services, in part reflecting current macro uncertainties and tougher year-over-year comparisons," wrote Goldman Sachs analyst Sarah Friar.

Friar wrote that SAP is likewise being relatively conservative with its expectations for growth around Business Objects, given the analyst firm's estimated range of minus-3 percent to 5 percent growth, "essentially assuming no acceleration in [Business Objects'] growth - which may be appropriate given SAP's limited experience integrating acquisitions."

During his opening remarks in a conference call, SAP CEO Henning Kagermann said the company is betting its future growth on three key segments, two of which are new for the world's largest business applications maker: a midmarket business model that includes the company's on-demand ERP [enterprise resource planning] suite, Business ByDesign, released in 2007; and a new Business User Solutions group that encapsulates Business Objects' business intelligence and CPM [corporate performance management] software with SAP's GRC [governance, risk and compliance] suite. The third leg of SAP's go-forward strategy is its core ERP offering that includes its Business Process Platform, ERP Suite and Web services.

"All our investments - Business ByDesign, the Business User solutions - will have a positive impact on the business," Kagermann said. "We believe these are three advantages: We are the market leader for all the key segments for the large and midmarket, and for the very important Business User applications segment; we have a very balanced, very rich portfolio; [and] we are strong in all industries and we have a natively integrated portfolio."

Kagermann said that relative to the Business User Group, called SAP Business Objects, the company plans to both cross sell and up-sell to the about 30,000 non-SAP customers it has gained through the acquisition. "First we want to extend into this market," he said. "Second we want to combine the best of BI with the best of the Business ByDesign platform. We can create a new closed loop business performance optimization [platform]. You can only do that if you are closed. This will help us."

He expects BI capabilities to reach fully 50 percent of users in an enterprise, a huge leap from the current 10 to 15 percent penetration today.