SAP Sees Software Sales Spiraling Upward

Predicting software revenues will increase by as much as 12 percent this year, SAP looks to hire 3,000.

During its fourth quarter 2004 earnings call Wednesday, software giant SAP AG predicted its software revenues will increase between 10 percent and 12 percent in 2005.

SAP, which plans to hire 3,000 new employees to facilitate the growth, points to particular success in U.S. markets as an indictor.

Overall software revenues reported by SAP were $3.14 billion for 2004, a 10 percent increase over the same period in 2003 that saw $2.74 million in software revenues. Software revenues in the United States, on the other hand, increased 27 percent year-over-year, from $641 million in 2003, to $816 million in 2004.

The results helped SAP gain market share against its top competitors—defined in SAPs earnings release footnote as Microsoft Corp., Oracle Corp., PeopleSoft Inc. (which ) and Siebel Systems Inc. SAP said it controlled 64 percent of the business applications market in the first quarter of 2004.

Total revenues for the full year increased 7 percent, from $9.2 billion in 2003 to $9.8 billion in 2004.

The company has already started hiring new executives, announcing several new appointments Wednesday.

Michael Sotnich, the former vice president of partner sales at Veritas Software Corp., was hired as senior vice president for small and midsize business. Hes responsible for driving sales and growing the SAP partner channel—an emphasis the company has had for at least the past two years.

PeopleSoft expatriate Steve Winter was named senior vice president of SAPs regional sales management team. Hell lead a newly created sales team that focuses on the Southwest region of the United States.

SAP also said it set up a $1 billion revolving fund to help the company be more flexible in its spending. With a hefty cash balance already in SAPs coffers, analysts suggest the move will enable SAP to act more quickly when an opportunity arises.

SAP is not generally an acquisition-minded company, but its handful of purchases over the past several years have been astute, analysts say. The purchase of TopTier Software Inc. in 2001 brought composite application middleware along with wunderkind and executive board member Shai Agassi. The acquisition of TomorrowNow earlier this month brought a wedge against Oracle.

While SAP might try to fill some holes in application functionality, analysts say, it may well have its sights set on the stack.

"We know in certain [application] areas like inventory management, there are a number of issues," said Chris Jones, an analyst at Aberdeen Group Inc., in Boston. "At the technology platform level, I wouldnt be surprised to see them do something."

SAP Enterprise and former SAP R/3 user Marc Evans, CIO of Tesoro Petroleum Corp., of San Antonio, said he wants to see more platform-level capabilities. "Were looking forward to SAP truly getting Enterprise 2.0 put together and ready to roll, making sure thats more NetWeaver- and XI-enabled," said Evans.


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