CNET también está disponible en español.

Ir a español

Don't show this again

Tech Industry

Business software chill not fatal

Analysts say the ERP market's slowdown is more of a market correction than signs that the era of record growth and profits is coming to an end.

    The Asian flu is more of a sniffle for SAP and the rest of the business software makers.

    While nearly all of the vendors in the enterprise resource planning (ERP) market are reporting slower growth than anticipated for the year, analysts say it's more of a market correction than signs the era of record profits for the ERP market is coming to an end.

    "It's not that bad at all if you really look at it," said Harry Tse, analyst at the Yankee Group in Boston. "You have to take Wall Street out of the picture to have an objective opinion on what's happening. Those growth numbers we have been seeing are not realistic. We are still predicting strong growth. Overall, the ERP market is still averaging about 30 to 35 percent growth levels."

    SAP announced today that preliminary results show it will hit target growth levels this year of 30 to 35 percent but finicky Wall Street was expecting the German giant to exceed those numbers. Investors are now accepting SAP's predictions and as a result, SAP's stock prices slid today on the German market.

    SAP's chief rival Oracle is also feeling the effects of the Asian economic crisis in its application division. In response to its problems, the Redwood Shores, California-based vendor shook up its marketing department, shuffled top management, and even called on its charismatic CEO Larry Ellison to head up the division and give it some focus and new life.

    And back in Europe, the Baan Company has also seen its share of problems. The Dutch vendor with dual headquarters in Putten, the Netherlands, and Reston, Virginia, took a hit its last quarter to meet new reporting requirements. But the vendor has also struggled to maintain the high double and sometimes triple-digit growth that was becoming expected of it and the ERP market as a whole.

    Baan has taken several steps to stay competitive in the future. Its leader and founder Jan Baan stepped aside and turned over control of the company to a more business-savvy executive, Tom Tinsley. Tinlsey is now the chief executive officer and president of the Baan Company while Jan Baan continues as chairman.

    That's not to say the Asian crisis isn't having some affect on the business application world. In December SAP declared itself relatively immune to the problem as reports of Oracle's downfall from the Asian crisis hit the news. Now SAP is catching the chill as sales in seemingly safe markets like Japan begin to feel the economic pinch and put projects on hold.

    Still, Tse and other analysts said Asia is not that important a market for the ERP vendors and recovery from the slump should be quick. The Pacific Rim enterprise resource planning business accounts for a mere $150 million of the entire $6 billion ERP market.

    Even during the worst economic times, the ERP market has continued to do well. In the late 1980s when the world was knee-deep in a recession, the market for business process automation software continued to have 20 to 25 percent growth rates on average.

    AMR Research in Boston predicts growth to continue this year at 41 percent over the $5.1 billion in software sales for 1997. Some industries like automotive assembly have gone virtually untouched. AMR predicts that software sales in that industry alone will grow 114 percent.

    For the first quarter 1998, SAP had growth rates of 50 percent, J.D. Edwards was at 66 percent, Baan came in at 35 percent, PeopleSoft at 64 percent , and Oracle still managed 29 percent, according to Tse.

    And with most of the companies currently implementing ERP systems only 30 percent of the way through their projects, the market is expected to stay strong. Tse said this will remain so even if some companies take breaks to solve millennium date problems or if economic situations like the Asian crisis interrupt sales cycles.

    Some Wall Street firms tend to agree with the assessment. Deutsche Bank Securities in a recent report tried to put investors' concerns at ease with an extensive study of the market. The firm concluded that there is still plenty of untapped ERP business with Fortune 1000 companies still buying systems and the middle market is virtually untouched.

    "Based on an average sale price per seat of $2,000, we estimate the industry shipped 2.5 million seats last year," the report stated. "We estimate the addressable market is 60 million in the United States alone and as much as 150 million worldwide."