Friday, January 30, 2009

SAP’s Bill McDermott Reviews SAP’s $15B Year

SAP’s Bill McDermott Reviews SAP’s $15B Year
Friday, January 30, 2009
Bruce Richardson

On Wednesday, January 28, SAP AG hosted an early morning conference call to discuss results for the fourth quarter and year-ending December 31. Total GAAP revenue for the fourth quarter was Euro 3.488B (or $4.58B based on the 1.314 exchange rate), up 8% from the year earlier period. Full-year GAAP revenue came in Euro 11.567B ($15.199B), up 13% over FY07. Investors appeared relieved by the relatively positive news and bid the stock up nearly 6% in trading that day.

Putting performance aside, nearly all of the news coverage focused on the company’s plans to eliminate 3,000 jobs this year. SAP ended 2008 with 51,536 employees, up 7,675 or 17.5% from the end of 2007. Most of the increase came from the 6,224 employees added in the Business Objects acquisition, which closed last January.

During the earnings call, SAP said that the head-count reduction began last quarter with the elimination of 327 positions. Executives estimate that the 2009 cuts will save the company approximately Euro 300M–350M ($397.5M–$463.7M).

Inside 4Q performance with Bill McDermott

With the broadcast of the earnings call on in the background, our attention was focused on our quarterly call with Bill McDermott, SAP’s president of global field operations. As usual, he was in a very upbeat mood despite a challenging economy that put pressure on deal pricing and nearly eliminated any purchases by first-time buyers.

We opened with a discussion of results by geography. Mr. McDermott said that “Latin America grew very well;” EMEA and Asia-Pacific Japan did “well;” Canada was “great;” and the United States just “OK.” In Europe, “Russia struggled,” while results in Italy and France were “particularly strong.”

BRIC countries: “All have challenges”

The mention of Russia prompted us to ask about the other BRIC (Brazil, Russia, India, and China) countries. He said that “all have challenges.” There are currency and liquidity issues in Brazil. For Russian companies access to capital has become more difficult. Indian sales were slower due to the terrorist attacks in Mumbai. Fortunately, China “remains strong.”

From regions we traversed to verticals. He said SAP’s results were “reasonably balanced” across industries. Retail was “slower” with the exception of software for pricing and margin management. Despite the negative publicity surrounding their industry, banks are still buying software, pointing to good results in Colombia and good penetration of Business Objects into the “mature U.S. banks.” He said that SAP had also been successful selling Business Objects and trade promotion management software to consumer packaged goods (CPG) companies.

Overall, Business Objects has been a “significant contributor,” having replaced more than 600 competitive implementations in SAP accounts. Business Objects is also gaining traction in the area of governance, risk, and compliance (GRC)—“it’s rocking.”

In terms of other products, Mr. McDermott said that the new version of CRM was “doing very well” as buyers use it to get closer to their existing customers.

We delicately brought up the issue of head-count reduction. I told Mr. McDermott that many software companies, including SAP partners, have been telling us that more SAP sales talent had become available due to end of the year job cuts. He said the rumors were unfounded and repeated SAP’s plans to lower head count through attrition.

The conversation shifted to deal flow. Looking at 2008 results versus the year earlier period, Mr. McDermott said that “20% of revenue came from larger transactions, 45% from smaller transactions, and 35% from midsized transactions.” With the downward pressure on prices, SAP “needs to do more volume.”

New SAP product launch on February 4

Mr. McDermott is hoping that the next release of the SAP Business Suite will help to increase the sales volume. The launch is taking place on Wednesday at the company’s offices in Manhattan. When asked for a preview, he described the new software as “the most harmonizing, efficient, feature-rich software” that SAP has developed.

The teaser about the new product marked the end of the call. That was too bad as we still had more questions. We’ll have a chance to ask them at next week’s event. Jim Shepherd and I will be in New York for the launch. Look for our analysis next week.

On the blog: How Do You Think SAP Will Perform in 2009?

As always, we welcome your feedback and ideas at our blog. We pose some questions there about SAP’s 2009, including:

“If I ran SAP, my next major acquisition would be __________. And, here’s why _____________.”

Let us know your answers there

© Copyright by AMR Research, Inc.

Wednesday, January 28, 2009

SAP to cut 3,000 staff amid gloomy outlook

SAP to cut 3,000 staff amid gloomy outlook
By Gerrit Wiesmann in Frankfurt

Published: January 28 2009 09:37 | Last updated: January 28 2009 09:37

SAP, the world’s largest maker of software used by businesses, on Wednesday said it would cut 3,000 staff, nearly 6 per cent of its workforce, as it expects revenues to fall this year from software sales, web services and maintenance software.

Léo Apotheker, co-chief executive, said the first job cuts in the German company’s history were a result of the “very exceptional” economic crisis.

SAP said it would incur restructuring costs of €200m-€300m ($265m-$397m) as a result of the cuts, while its sales margin would fall by three points to 24.5-25.5 per cent in 2009 as companies pulled back on software spending.

SAP’s intention to cut personnel costs comes a week after Microsoft announced its first job cuts. It shows how even software companies that found shelter from the dotcom bust are being rocked by the downturn.

The Walldorf-based company did manage to hit the full-year targets for 2008 that it set for itself in October, though these were well below initial goals for a year that Mr Apotheker had until late summer expected to turn in record profits.

SAP saw return on sales rise to 28.2 per cent from 27.3 per cent due to emergency cost cuts of €220m and full-year software and services sales of €8.6bn – a rise of 16 per cent, or 20 per cent when adjusted for currency moves.

“This year we expect to see software and software-related service sales at the 2008 level or slightly below,” Mr Apotheker said.

As a result, this autumn’s programme of cost cuts would go on and expand to include job cuts.

Mr Apotheker said the economic crisis had wrecked SAP’s initial goal of raising revenues from software sales, subscriptions and maintenance by 27 per cent to €9bn.

The year-end shocks saw companies spend less on applications, with SAP’s fourth quarter software sales falling 7 per cent to €1.3bn. Software and service revenues rose 9 per cent to €2.7bn thanks only to maintenance contracts.

Fourth quarter operating income rose 22 per cent to €1.4bn, almost entirely the result of cuts announced in October. This helped boost annual operating income 18 per cent to €3.3bn and net profit by 14 per cent to €2.2bn.

Mr Apotheker and co-chief executive Henning Kagermann expect SAP to emerge in better shape, not least as a result of annual personnel cost savings of up to €350m in and beyond 2010.

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Friday, January 09, 2009

Who Will Oracle Buy in 2009?

Who Will Oracle Buy in 2009?
by Bruce Richardson

IPOs and M&A activity in 2008 were barely existent in the tech sector, according to a new report from National Venture Capital Association and Thomson Reuters. Oracle was one of the few active companies. January has traditionally been a very busy month for the Oracle acquisition team, but as the economy struggles, what is in store for 2009?

We barely had time to bid 2008 a hearty good riddance before coming across data published by the National Venture Capital Association (NVCA) and Thomson Reuters. The two organizations teamed to provide data on the sorry state of the market for tech sector IPOs and mergers and acquisitions.

All told, there were six IPOs last year, with five in the first quarter and one in Q3.This was the lowest total since 1979, and it represents a dramatic falloff from the 86 IPOs in 2007. While there are 28 companies that have filed to go public, even magician David Blaine wouldn’t be able hold his breath until the IPO gates re-open.

On the M&A side, NVCA and Thomson Reuters tracked 260 deals involving venture-backed firms. The deal count was exactly 100 lower than 2007. The deals were smaller, too. Buyers spent a total of $13.92B in 2008 based on deals in which the price paid was disclosed. Compare that to the $28.41B paid in 2007. See our newly revamped blog for more, and please note the new location:

When The New York Times wrote up the study results, the reporter noted that Cisco Systems normally buys 10 to 15 tech companies each year. The company made only five purchases in 2008.

Oracle makes one big buy each year

While Cisco may be reluctant to whip out the checkbook, the same is not true at Oracle. Last year, Oracle purchased 11 companies, the same number as 2007. For the past four years, the company has added 48 companies to its roster (more on our blog on this too).

Over that period, Oracle has announced at least one big purchase per year. If you look at the Oracle website, it appears that the biggest deals are done in the first calendar quarter. Last January, the company made a bid for BEA for $8.5B. In March 2007, Oracle trumpeted its plans to acquire Hyperion ($3B). The website said that the Siebel deal was inked in January 2006, but the press release had the $5.85B offer occurring in September. The same site said that PeopleSoft agreed to be acquired for $10.3B in January 2005. As I recall, the deal was signed in December 2004.

Who will it be in 2009?

The landscape has changed dramatically since the PeopleSoft deal. The most noticeable change is the shortage of midsize software vendors with values in the $2B to $10B range. Here’s a close look at companies in that range based on the closing price of January 8, 2009:

• CA—$9.4B
• Intuit—$8.11B
• BMC Software—$5.02B
• Citrix Systems—$4.2B
• Teradata—$2.81B

Based on that list, looks like the most appealing. For companies less than $2B, take a look at the blog, where we give our thoughts.

What do you think?

Will Oracle pull the trigger on a big buy this year? Can Larry Ellison and team find another 11 companies worth acquiring in 2009, or is that streak in danger? Would you bet February’s mortgage payment on an Oracle-salesforce deal?