Given that it is toiling under the strain of an 17 month-long hostile assault, PeopleSoft has proved itself the exception by producing a startling set of results for its third quarter. Even its unwelcome suitor, Oracle, was impressed enough to raise the price of its offer for the company after having lowered it earlier in the year.
Revenues to the end of September were up 11% year-on-year to $698.8 million and PeopleSoft recorded net income of $23.6 million in comparison to a net loss of $7.3 million a year ago.
Last year's figures were considerably weakened by charges relating to PeopleSoft's purchase of JD Edwards, exaggerating the improvement slightly. However, the company's feat of adding 138 new customers to its base was impressive. New customers accounted for 21% of licence revenue in the quarter, above the new licence percentage when the takeover battle was beginning.
Analysts have struggled to understand how PeopleSoft has managed to perform so well, particularly in the light of Oracle's 36% collapse in licence sales in its last quarter. One suggestion is that PeopleSoft customers have accelerated their purchases in order to qualify for incentives before the takeover issue is resolved.
In its fight for regulatory approval of its acquisition of PeopleSoft, Oracle has been telling the courts that the increasing challenge from Microsoft will continue to ensure a fair level of competition in the business applications sector. To support that argument, Microsoft's Business Solutions segment dutifully put in a respectable 9% growth for its first quarter of fiscal 2005, recording revenues of $160 million, up from $147 million a year ago. Much improvement was down to the "double digit" revenue growth of its customer relationship management (CRM) business and a "strong showing" from its mid-range enterprise resource planning (ERP) package, Axapta.
Microsoft's smallest segment, Mobile and Embedded Devices, is also its fastest growing with revenues up 30% to $69 million. Server software sales increased 19% to $2.2 billion, and strong sales of Office 2003 pushed the Information Worker segment up 14% to $2.6 billion. But its Client business remains Microsoft's cash cow, accounting for $3.0 billion of total revenues and more than half of its $2.9 billion in profits.
One small blemish on Microsoft's results statement was a larger-than-expected drop in forward bookings. Microsoft told analysts that the reason for the fall is that its customers are taking longer to renew software contracts. "They clearly use the renewal period to hold out for discounting," said CFO John Connors. He claimed this deceleration was also due to larger deals, which take longer to negotiate. Analysts noted that the next big upgrade to Microsoft's desktop and server software is still a long way off, making corporate customers more reluctant to renew contracts.
Also bolstering Oracle's case that the business applications sector is replete with competitors, were strong results and a confident outlook from German ERP giant SAP. With third-quarter revenues up 11% (adjusted at constant currency) to E1.8 billion and new licences up 17% to E491 million, SAP continues to dwarf its rivals. It also claims to be taking customers from both Oracle and PeopleSoft, growing its share of the US enterprise applications market from 32% to 38%. European software sales increased 24% and overall profits were up 15% to E291 million.
SAP CEO Henning Kagermann clearly enjoyed his post-results conference call to analysts. SAP, he said, banked 56% of all the applications money generated by the top four vendors (Oracle, PeopleSoft, Microsoft and SAP) in the quarter, up 3% on the same quarter in 2003. The company's increasingly valuable mid-market customer base is also growing fast and CRM software revenues now make up one fifth of overall sales.
"We have now increased our rolling four-quarter market share to 124% of Siebel's software revenues," added Kagermann, suggesting SAP is running away with the CRM crown it recently stole from the Californian sales software vendor.
So where does that leave Siebel? With profits of $19.4 million, the company's third quarter results seemed to please financial analysts. Siebel has been inching away from red ink, recording its second consecutive profitable quarter; losses were $59.3 million a year ago.
But this growth in profit was accompanied by a decline in licence revenue. Though up on the low point of its second quarter, $104.6 million in licences is still down on the $110.0 million reported in the third quarter of 2003 and the $126.8 million recorded in the same period for 2002.
Siebel OnDemand, the company's response to the hosted-CRM offerings of Salesforce.com, Salesnet and others, is claimed to be growing in value by around 30% a quarter, though its figures are not broken out from software or services revenues. OnDemand first became available in the first quarter of 2004, when Siebel said it closed 229 deals for the product. Even if the company is targeting larger customers than its upstart rivals, this means it is still likely to have fewer than 400 licences for its fledgling online service (its total customer base is around 4,000).
Perhaps forthcoming vertical specialisations can help accelerate the growth of OnDemand. But next to Salesforce.com's 88% leap in revenues in its second quarter, Siebel looks like it has a lot of ground to make up, online and offline.