SAP gains on Oracle, reasserts growth strategy

The software vendor said its strategy to grow the company without making acquisitions is paying off.

SAP reported a nearly 20% increase in third quarter software license sales, easily beating analysts' forecasts with strong sales in the United States and Germany.

SAP accelerated its investment to create opportunities in the future, spending money on less expensive and more efficient organic growth.
Henning Kagermann,
CEOSAP AG

The software vendor's global license sales rose to $705 million. Revenue in the United States increased 34% to $237.8 million.

SAP executives have been on a vocal campaign to create uncertainty in the market, surrounding how Oracle will manage merging the $18 billion in acquisitions it made this year, including PeopleSoft Inc., J.D. Edwards & Co., Retek Inc., Siebel Systems Inc. and others.

"SAP accelerated its investment to create opportunities in the future, spending money on less expensive and more efficient organic growth," said SAP CEO Henning Kagermann, during a conference call this morning for financial analysts.

Kagermann also estimated that SAP's global market share rose from 58% to 60% in the second quarter. Market share in the United States also rose from 41% to 44%, according to Kagermann, outpacing Microsoft, Oracle and Siebel.

SAP recently extended its Safe Passage program, offering license credits and services to Siebel customers. The program is also being offered to customers using other software vendor products being acquired by Oracle. So far, SAP said 30 customers, including luggage maker Samsonite Corp., have signed on through the program.

Analysts said while not many customers will migrate to SAP based on a license credit program, Safe Passage has been successful in fueling the market uncertainty.

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"These programs are designed to put another vendor on the defensive and apply pressure based on the first move," said Ray Wang, a senior analyst at Forrester Research Inc. "If you are just starting to look, you consider it, but then you look at the implementation costs and realize it's not that great a deal, unless you are planning to be a complete SAP shop."

In addition, SAP has been working to improve its network of partner independent software vendors (ISVs), adding hundreds of partner vendors this year to create products on the NetWeaver platform, Kagermann said. Larger partners, including Intel, Cisco Systems Inc. and EMC Corp., signed agreements to create products that are compatible with SAP's enterprise services architecture (ESA) strategy.

"We are actively engaging with partners for co-innovation and have already made significant announcements about the buildup around our enterprise services architecture," Kagermann said. "We have a clear and defined roadmap, while others face a long and complex process of fusing together pieces of acquisitions."

Mendocino on track; NetWeaver adoption rising

Kagermann said SAP's partnership with Microsoft to launch Mendocino, a product that merges Microsoft Office products with SAP systems, is on track to begin shipping in December, with general availability in spring 2006. A major deployment of analytical applications will also be launched next year, he said.

NetWeaver adoption is also rising, according to Kagermann. The earlier slow adoption of the NetWeaver platform was based on uncertainty about how open and standards based SAP's architecture would be, he said.

"Customers, as we expected, started business intelligence projects and are interconnecting one SAP system to another system using SAP XI; SAP Portal is another driver for NetWeaver," he said. "Customers are also starting to build composite applications ... and that gives us traction because customers have to buy NetWeaver usage."


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