SAP to continue on cautious footing well into 2003

German enterprise applications giant SAP has a reputation for being more sober in style than some of its more flamboyant US-based competitors – but even by its own standards of reserve, SAP is facing the future with extreme caution.

When the company announced its third quarter results in October 2002, for example, it was no surprise that it withdrew its earlier forecast of sales growth for 2002 of between 5% and 10%.

What was more surprising was the company’s point-blank refusal to provide a revised forecast to financial analysts. In a formal statement, SAP explained that it was unable to give guidance because “the overall political


Company name: SAP

HQ: Walldorf, Germany

Main activity: Enterprise applications software

Last full year revenues: EU7.34 billion

Last full year net income: EU319 million

Key issue: SAP is approaching 2003 with some caution, and is eschewing long-range strategies and predictions in favour of short-term launches and announcements likely to appeal to its installed customer base.



and economic environment is currently too unpredictable”. When pushed for a reason, co-chairman Hasso Plattner’s retort was typically blunt: “Watch CNN.”

For SAP, 2002 has been a year of cost cutting, scaled-back revenue forecasts and a marketing strategy that focuses more closely on near-term service and product launches than on long-range predictions and announcements.

This is not to say that SAP is having trouble riding out the IT spending downturn. In fact, it appears to be doing better than many other software companies. Third quarter sales at the company rose only slightly to EU1.7 billion, from EU1.65 billion in the third quarter of 2001, while software licence revenue fell 3% to EU435 million, from EU447 million in the same quarter a year earlier.

But financial analysts were still impressed. David Clayton, head of European technology research at Credit Suisse First Boston, was bullish. “I view these as extremely good numbers,” he told the Wall Street Journal. Moreover, by cutting operating expenses by 8% in the third quarter SAP was able to post a more than five-fold rise in net profits to EU202 million, from EU37 million a year earlier.

So what is SAP’s strategy for the remainder of the year and into 2003? One thing is clear: it plans to focus far more acutely on selling add-on software to its installed base of customers, rather than pitching to new prospects.

This much was made clear at the company’s recent Sapphire user event in Lisbon, Portugal. SAP used the event primarily to familiarise existing customers with a new product family, SAP xApps – a series of applications intended to fulfil specific business processes that can take data from a variety of SAP modules, as well as third party software.

The purpose of these applications, according to SAP, is to “provide a technology solution for people-driven processes that help enterprises execute corporate-wide strategies with greater ease and efficiency.”

The first product in the xApps portfolio, Resource and Program Management (xRPM), is scheduled to ship in December 2002. Another product, the SAP Employee Productivity Suite, will be rolled into the suite and renamed xEP in early 2003, when it will be joined by a third xApp that will focus on merger and acquisition activities, outlines to SAP’s UK head of marketing, Peter Robertshaw.

SAP is developing these xApps with a range of partners, including systems integrator Accenture. According to Robertshaw, SAP plans to launch “several hundred” xApps during 2003. He acknowledges that the first sales of xApps are likely to be to existing SAP customers, but adds that the company hopes to sell them to new customers because they offer additional capabilities on top of current products and can also draw data from non-SAP applications.

SAP is also pinning much of its optimism for growth in 2003 on its customer relationship management (CRM) software. The company’s third quarter results demonstrate that there is certainly opportunity for expansion in this area. While SAP reported shrinking revenues for its business intelligence, portal, supplier relationship management and B2B exchange products during the quarter, sales of CRM software soared 19% year-over-year, and now represent about a fifth of total licence revenue.

To that end, the company recently release the latest version of mySAP CRM in late October 2002 and the product has been well-received by analysts, such as AMR Research’s Kevin Lucas. “Sporting a new graphical user interface, mySAP CRM 3.1 at last achieves standardisation across the entire suite. It looks to be a big improvement, but the real test will be early implementations that show whether standardisation produces an awkward visual straightjacket or an intuitive interface,” says Lucas.

Bruce Richardson, research director at AMR Research, argues that given the outlook for 2003, SAP’s management is right to adopt a cautious strategy focused on its installed base – and, if necessary, only on those at the very high end of its considerable existing customer roll call.

“Given the likelihood of another slow year [in 2003], my bet is that SAP intends to put its attention on its largest customers. My immediate guess is that [its] 500 or 1,000 largest accounts could each be worth several million in incremental spend over the next 12 to 18 months in services and applications revenue,” says Richardson.

If that is the case, perhaps SAP does not need to rely on the type of flamboyant marketing tactics that attract new customers in order to remain on its steady course.

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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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