SAP Defies Gloomy IT Market

Jul 19 2001

German business software maker SAP flew in the face of depressed market conditions today, announcing strong second quarter financial results. The company's sales and profit numbers beat analysts' expectations, and SAP stood by its bold forecast for the full year 2001. SAP's sales rose 24 percent to $1.62 billion from the second quarter 2000. Net income rose 78 percent, to $180 million , Ebitda improved 118 percent, to $393 million . In a statement, the company reiterated its forecast: "SAP expects revenue for the full year 2001 to grow by more than 20 percent. Operating margins' are expected to exceed the 20% achieved in 2000 by 1 to 2 percentage points." SAP will give further details when it holds its press conference in New York this morning. SAP has managed to surprise with good financial results for the third time in six months, while its competitors such as Oracle, Siebel, I2 and Ariba have struggled with declining sales and profits. SAP's share price has risen more than 50 percent from its January low of 96 euros. In Frankfurt today, the stock jumped 10 percent, to 153.05 euros at noon. Two trends are given as a reason for SAP's remarkable success. As its more internet-oriented competitors such as I2, Ariba, or Commerce One struggle, SAP's clients were more comfortable with sticking to a well-established firm, analysts say. SAP was founded in 1972 by ex-employees of IBM Germany, and for decades has dominated the market for business software with its R/3 software package.

"Customers are turning to companies with whom they can sign long-term contracts," Joerg Natrop, an analyst at WGZ Bank, told Bloomberg News. "[SAP] are benefiting from the weak market because they have a broad client base." SAP has 15,000 clients that use 36,000 installations of its software to manage resources such as the workforce, inventory, procurement, and customer relations. It won new contracts from oil giant Shell, record label Virgin Entertainment, and the U.S. Department of Defense in the past quarter. The second reason for SAP's remarkable success is a change in its product philosophy. In 1999, a first attempt to make its flagship product R/3 internet-ready and to rebrand it as mySAP.com failed. But last year, the company launched a more fundamental repositioning. Instead of insisting that their clients buy its monolithic software, SAP has encouraged them to combine SAP modules with those of competitors and alliance partners. SAP entered a close alliance with rival Commerce One to provide online marketplaces, and with Yahoo! to install customized corporate portals.