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R/3 drives SAP success

The company says first quarter sales grew 62 percent and attributes that jump to high demand for its business applications suite.

German software giant SAP continues to dominate the enterprise applications market.

The company said today that first quarter sales grew 62 percent over last year's first quarter sales, and above analyst expectations. It attributed the rise in sales to high demand for its R/3 business applications suite, which is Year 2000 compliant, as well as the strength of key currencies against the deutsche mark.

The company said sales rose to roughly 1.67 billion deutsche marks, or $918 million, from 1.032 billion deutsche marks, or $565.5 million, a year ago. SAP said Year 2000-related fixes and the impending conversion to a single European currency drove R/3 sales.

But Giga Information Group analyst Byron Miller said the continued success of the company is also due to R/3's strengths compared to competitors' offerings.

The company's recently announced component strategy makes R/3 more flexible than competitors' products, Miller said.

"I've heard some stories of people who wanted to go with an easier route [than implementing R/3]," he said. "They're coming back and giving another look at SAP." The company has also increased its range of products, he added.

Many of the big players in the enterprise applications market, Baan and PeopleSoft, in particular, have enjoyed strong demand for their products.

But SAP continues to set the pace in the market, Miller said. "They out strategy and out think their competition."

SAP has also benefited from strong relationships with hardware providers, such as Compaq Computer, which recently announced its 2,000th installation of R/3 on its Windows NT-based servers.

SAP competes with Baan, Oracle, PeopleSoft, and, to a lesser extent, J.D. Edward's, in the global ERP (enterprise resource planning) systems market.

These companies provide software used to automate and integrate corporate functions such as sales forecasting, inventory, control, procurement, manufacturing planning, distribution, finance, and project management.

ERP applications have become fixtures at a large majority of multinational corporations in recent years, but sales have begun to stagnate with market saturation, observers say. The major ERP vendors have devoted large resources to extend their core product to the front-office in an attempt to make it attractive to a more diverse market. Part of that strategy includes breaking core products into component models, like SAP's Business Framework and Baan's recently announced Baan ERP.

Another factor contributing to SAP's success is the component architecture it has put in place and expanded upon. It "is allowing them to take advantage of the product in different ways, to develop newer things. The development now is less constrained than it used to be, allowing them to go into new [vertical markets]," Byron said.

SAP will attempt to sustain its momentum with R/3 4.0, due to ship in June. That release is expected to include additional features aimed at handling supply chain management, a growing market for business software providers.

The company did not release its complete earnings details. Full results are due April 21, the company said.