Article

SAP misses financial expectations, loses ground to Oracle

Robert Westervelt, News Director
SAP's gains against Oracle Corp. came to a grinding halt in its second quarter, with lower-than-expected sales resulting in a loss of market share to its archrival.

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Oracle's recent results show that they're back on track, and the SAP numbers confirm that this could be normalizing the market at this point.
Paul Hamerman,
vice president of applicationsForrester Research Inc.

SAP CEO Henning Kagermann said the company lost as much as 2% market share to Oracle, putting an end to 12 consecutive quarters of gains. SAP also lost ground to Microsoft, but Kagermann said the losses to its two top competitors do not represent a trend.

"Against our peer group, this is not very important, because of the gains we've had in consecutive quarters," Kagermann told reporters during a conference call.

SAP has been taking advantage of the market uncertainty created by Oracle's 21 acquisitions -- for more than $19 billion -- over the last two years, industry analysts say. Oracle has been undergoing a period of reshuffling and consolidating of its salesforce around its new products, including PeopleSoft Inc., JD Edwards and Siebel Systems Inc., according to Paul Hamerman, vice president of enterprise applications at Cambridge, Mass.-based Forrester Research Inc.

Oracle reported a 27% increase in profit last month, attributed to an influx of application license sales, signaling that some of its internal retooling may be complete, Hamerman said.

"Oracle's recent results show that they're back on track, and the SAP numbers confirm that this could be normalizing the market at this point," he said. "SAP has been a stellar performer in that their license revenue growth was significantly ahead of most competitors, but in a mature market, it's hard to sustain double-digit growth."

Kagermann attributed the slowdown to slower-than-usual order processing within the company's Safe Passage program, a group of incentives designed to lure customers away from Oracle. He said that SAP counted 40 customer wins via Safe Passage in the first quarter and 70 wins in the second quarter.

But executives couldn't close deals in time for the end of the second quarter. The process of closing deals is complex, Kagermann said, noting that no deals have been delayed for competitive reasons. He also pointed out that IT spending remains strong, despite the lower-than-expected license sales.

"Demand hasn't changed, and the environment hasn't changed," Kagermann said. "Execution was not exactly the same that we had in quarter one."

Despite missing analysts' expectations, SAP software licenses rose 8% in the second quarter, accounting for $788 million, according to a company statement. The number was $73 million less than the $861 million anticipated by financial analysts.


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