SAP marches to its own beat
The company foresees a strong fourth quarter, and investors spread the joy around the corporate software market. But just how much of a bellwether is SAP, anyway?
When SAP last week said it would report better-than-expected fourth-quarter results, its share price immediately rose 10 percent, and several investment banks upgraded their ratings for the company. Other sellers of corporate applications--including Oracle, Siebel Systems and i2 Technologies--gained 4 percent to 6 percent on the same day largely because of SAP's news.
Yet some analysts believe SAP inhabits its own world with ready-made customers. Because SAP has a strong base of existing customers who will buy new modules that plug into products already installed, the company can grow even if the overall market doesn't.
"SAP isn't a real bellwether for enterprise software," Josephthal analyst Bert Hochfeld said. "I think they're doing a better job of managing the opportunities in their own installed base...but I don't think SAP's knocking down a lot of new accounts."
A spokesman for SAP declined to comment on details about the company's fourth quarter. Most technology companies enter self-imposed "quiet periods" in the weeks leading up to their release of final results for the latest fiscal quarter ended.
In that context, many took SAP's pre-announcement as the best evidence yet for a trend.
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see commentaryThat's not necessarily a problem right now for SAP, since it has such a large slice of the traditional ERP market. Market surveys for the past few years have consistently placed SAP's percentage of the ERP market in the mid-40s, by far the largest of any company.
"If SAP lost every head-to-head deal (outside of new sales to existing customers), they're still in a better position to close more business than a Siebel would," Bond said.
Yet because SAP's sales in newer areas largely come from mining its ERP customers, it's not a true indicator of the market, Hochfeld and Bond said. A better measure of the enterprise software industry's strength, according to Hochfeld, comes from more specialized companies such as Siebel, whose sole focus is customer relationship management (CRM), or Rational Software, whose products are used by large corporations' in-house software developers to design and test code.
And SAP's fourth-quarter pre-announcement, while stronger than expected, included software license sales above $891 million, or slightly more than 1 billion euros--about the same as the comparable period a year earlier. The fact that shareholders are happy even though SAP's license sales didn't grow at all says more about Wall Street's lowered expectations and less regarding market strength. Enterprise software companies have been forecasting so much gloom that just holding the line on sales looks good, even if it really isn't, Hochfeld said.
"If you said that your kid is going to read when he's 10, and he starts reading when he's six, I wouldn't say he's a genius," Hochfeld said. "That's what we have here."
SAP itself tried to keep expectations in check. The overall market remains "challenging," the company said in last week's press release.
Many SAP observers believe the company will do well in the long run. "They showed some really good technology last fall," said Byron Miller, analyst with Giga Information Systems. "All of the vendors go through cycles and when they have a technology refresh, they're pumped up a bit."
But instead of comments from a few executives, a far better indicator of the industry's progress will come when final reports are issued for the December quarter, Miller said.
"It's too early to tell," he said. "Until we see their real numbers, we don't know."