Friday, March 16, 2007 / Companies / IT - SAP eager for new product launch / Companies / IT - SAP eager for new product launch

By Gerrit Wiesmann

Published: March 16 2007 02:00 | Last updated: March 16 2007 02:00

Henning Kagermann, chief executive of SAP, said he hoped the phased introduction of a new subscription service over the next three quarters would restore investor confidence after difficult months.

The world's largest maker of business software expects an online product allowing small companies to manage client relations or factory inventories to hit the mass market around the end of the year.

"We're at the start of a number of phases that will test how well A1S works," Mr Kagermann told the Financial Times. "I think positive investors will say quite quickly they like what they see. The critical ones will need more time."

SAP is under pressure after missing growth targets in its big-company business in two quarters in 2006. It also said it would spend €400m ($529m) until 2008 to launch the new product for small companies, lowering profits.

Investors worry this signals the company is struggling to cater to small companies as well as big ones. The stock has fallen 15 per cent to about €34 per share since January, well off a peak of €47 seen last spring.

Mr Kagermann dismissed whispers of a takeover and said SAP would stick to its tradition of investing in organic growth, even if there would "always be cases" in which investments hit earnings.

Speculation that founders Hasso Plattner, Klaus Tschira and Dietmar Hopp were in talks to sell their30 per cent stake in SAP to private equity was "like déjà vu", he said, referring to past takeover talk. "I made three calls and then we were able to publish a denial," he said. Shares had suffered under the product announcement, which came in early 2007 to allow time for testing. "But the stock will recover."

Taking a swipe at acquisitive US rival Oracle, Mr Kagermann said he was "amazed" a company could reap applause for buying rivals "with money that still has to be earned" while SAP met with scepticism.

"I can understand that someone wants to buy other technology if he can't do it himself," he said. "But it's not the only model. Ifthe market doesn't digest this, we will simply have to prove [our model] works."

He said SAP would "confront" selected customers with the new subscription system for small-company software in the second and third quarters and raise the volume of users until the end of the year.

"At that point, we have to decide whether the system is volume ready," he said, voicing confidence the web-based service would be opened to general access by the start of next year at the latest.

The one-size-fits-all software that SAP will "host" for its clients on its computers marks a break and a gamble for the Walldorf-based company, which has thrived as a bespoke provider to big companies.

In this sector it holds about a quarter of the market, easily twice as much as Oracle. But its success means SAP has had to turn to small and medium-sized companies to keep growing strongly.

Mr Kagermann said investors were nervous as the new product was coupled with a new business model. While big groups buy SAP's software for their offices, small companies will rent A1S and use it online.

Installing databases meant the subscription model had big start-up costs. "People know this is the better model. But the upfront cost means few dare to introduce it," he said. "You only start printing money later."

Copyright The Financial Times Limited 2007

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