With a fervor not generally seen in earning calls, SAP AG laid out its plans for 2006—as well as for the next four years.
During its Jan. 25 fourth-quarter and full-year 2005 earnings call, SAP said its goal for 2010 is to quadruple earnings by increasing the “addressable market” to $70 billion, 50 percent of that through new products.
“Well have about 100,000 customers, with 40 to 45 percent order entry coming from the market,” said Henning Kagermann, SAPs CEO, in Walldorf, Germany. “New sources of revenue with high margins will be developed.”
At the same time, with the completion of its Enterprise Services Architecture in 2007, SAP plans to “industrialize” software development, with more variants available at lower cost with higher margin, Kagermann said.
The platform play is one thats relatively new to SAP. The company entered the infrastructure market with its 2003 announcement of its ESA strategy and underlying NetWeaver technology stack.
With NetWeaver, SAP upped the ante in terms of a competitive landscape, pitting SAP against Oracle, Microsoft and IBM not only in the applications area—or services, as companies move toward componentized applications and SOAs (service-oriented architectures)—but also in the middleware space that includes application development.
Not by coincidence, SAP, Oracle and Microsoft are all on the same trajectory when it comes to componentizing their applications and adding underpinning that with a services-based infrastructure.
The big difference: SAP has about a two-year lead on Oracles Fusion Applications and Microsofts Dynamics—both expected around 2008.
And SAPs numbers are hard to argue with.
The company saw an 18 percent software revenue increase over 2005, with another 18 percent increase in the fourth quarter.
For the first time, the company sold $1 billion worth of software in North America, where there was a 31 percent increase in software sales, and saw $3 billion in total revenue for the region—a key competitive area for SAP and Oracle.
“Despite the acquisitions of others, we continue to be the clear leader in the U.S.,” said SAP Executive Board Member Leo Apotheker, referring to Oracles dozen acquisitions in as many months.
With respect to middleware—where the battle looks to be played in the future—SAP reported 500,000 million euros generated by NetWeaver this past year, or 6 percent of SAPs software revenues.
“One-third of this is stand-alone, where no other applications come in,” Kagermann said.
Despite its runaway success over the past year, SAP is far from where it wants to be in 2010.
SAPs Road Map
That said, the company laid out a road map for getting there.
One area of increased investment for SAP will be around its partner network—an area it was not known to favor in the past.
To date, SAP has certified 1,000 partners, 60,000 developers and 500 channel partners on NetWeaver. It plans to increase spending in 2006 and beyond.
On the technical front, in 2006 SAP plans to introduce one central repository where enterprise services are contained.
Kagermann said this strategy is particularly important in that the repository represents a new level of abstraction in which companies will be attached and will decide how to configure software.
It also plans to release the fist iterations of products announced last year, including Mendocino, the joint development project with Microsoft that will link SAP process functionality to Microsoft Office applications.
The company will also release SAP xApps for analytics and SAP for Personal Productivity.
And sometime next month, after months at hinting at a product strategy, SAP will announce its plans for an on-demand CRM (customer relationship management) offering.
Beyond this year, SAP is looking at some rather nebulous strategies to move ahead.
It will focus on providing more capabilities for the business user—expected to be 50 percent of total revenues by 2010—and to continue expansion through organic growth.
The company plans to invest in talent (it fell short of its 3,000 new hire mark for 2005 by 1,000), in products, and in co-innovation with partners.
Kagermann said additional acquisitions are not out of the question, but will be along the lines of those the company made in the retail sector last year—in other words, no major buys.
“Our product strategy has been very transparent for a couple of years, and for the next couple of years well continue that strategy,” Kagermann said.
“We think the roadmap will give us a lead over competitors for many years. Our guidance matches our long-term strategy.”
But there are still other factors to consider in weighing SAPs future success.
This year is a decisive one for the company, with the first wave of products on the market that supports the companys ambitions for 2010.
“If there are any risks, I see them in execution,” said Kagermann. “This is a long-term horizon. I hope we dont stumble, but we dont intend to stumble.”
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