SAP holds up well in IT spending downturn


9 January 2003 SAP, Europe’s biggest software company, today demonstrated its ability to withstand the slump in global IT spending by saying licence sales have been holding up much better than the market had expected.

The German enterprise resource planning software company released preliminary fourth-quarter results that suggested revenue would grow “slightly” on the same period a year ago and licence sales would slip only marginally, from €1.03 billion last time to €950 million this year.

While software companies traditionally do well in the fourth quarter, financial analysts had expected SAP to report a small decline in revenue and a big drop in licence sales – a key indicator of a software company’s underlying strength – to only about €830 million.

SAP said it hoped to raise operating margins by a percentage point to 21% for 2002, meeting a target that many financial analysts had dismissed as over-ambitious earlier in the year.

The company has laid off only a relative handful of staff during the downturn, suggesting that the margin rise came about by raising fees.

A recent survey of 340 of SAP’s 17,500 customers by JP Morgan, the US investment bank, found evidence that the software company had been able to implement “modest” price increases in the second half of 2002.

The bank said SAP seemed to have capitalised on many companies’ reluctance to go to the smaller and less financially stable IT suppliers during the downturn.

“This is a very strong performance, no doubt about it,” JP Morgan analyst David Reynolds told the Reuters news agency.

JP Morgan has now upgraded SAP’s stock from ‘neutral’ to ‘overweight’. Nevertheless, it is a sign of the despair felt by many in the IT industry that even small growth at one of its ‘gorillas’ should be greeted with an air of celebration.

SAP will release detailed results for the fourth quarter on 30 January at its annual press conference in Frankfurt.

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Ben Rossi

Ben was Vitesse Media's editorial director, leading content creation and editorial strategy across all Vitesse products, including its market-leading B2B and consumer magazines, websites, research and...

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