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






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