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SAP profits strong, gains on Oracle

SAP reported strong first-quarter license sales on Thursday. Executives indicated that SAP is not feeling pressure from rival Oracle Corp.

SAP reported better than expected first-quarter license sales on Thursday, taking a bigger share of the market from its rival Oracle Corp.

Oracle still needs to provide more clarity and assurance of a smooth migration path to Fusion for PeopleSoft migrations.
Paul Hamerman,
vice president of enterprise applicationsForrester Research Inc.

SAP said its license sales were up 17% in the quarter, driven by gains in the U.S. and strong license sales in Europe.

Analysts had predicted that new license sales would be sluggish as SAP defended itself against rival Oracle. Oracle launched a campaign this year to take market share from SAP, leveraging its successful $10.6 billion acquisition of PeopleSoft.

"Volumes are growing and the pipeline remains healthy," said SAP CEO Henning Kagermann, during a conference call with analysts Thursday morning. "We are by far the No. 1 provider of business applications in the U.S."

SAP's first-quarter software license sales came in at $565 million. SAP's market share in the U.S. increased from 38% a quarter to 41%. Its global market share stands at 58%.

Kagermann highlighted SAP's latest U.S. customer win, Denver-based luggage manufacturer, Samsonite Corp. A PeopleSoft customer, Samsonite is one of a handful of companies that is moving to SAP under its new Safe Passage Program.

The program was launched this year to win companies over to SAP from Oracle Corp., which now owns the technology from PeopleSoft and J.D. Edwards & Co. Under the program, SAP is offering a 75% credit toward mySAP ERP software that is built on the NetWeaver integration platform. SAP also charges customers a maintenance fee of 17% of the original purchase price of its PeopleSoft and JDE software licenses.

"The U.S. will be the key contract driver in 2005," Kagermann said. "We've already signed contracts with some customers and are in dialogue with many others."

The program also includes services to PeopleSoft and JDE customers through SAP's new subsidiary, TomorrowNow Inc.

SAP has gained a substantial share of the market during Oracle Corp.'s 18-month-long battle for control of PeopleSoft. Oracle was successful early this year, after it announced that it would be combining the technologies into a "super" enterprise resource planning suite through its Fusion project.

The battle helped SAP appear as the safe choice for customers, said Paul Hamerman, vice president of enterprise applications at Cambridge, Mass.-based Forrester Research Inc.

"Oracle still needs to provide more clarity and assurance of a smooth migration path to Fusion for PeopleSoft migrations," Hamerman said. "But I don't think SAP is going to gain a lot of new customers with its program."

New licenses for mySAP ERP also sold well, SAP said. In the first quarter, more than 300 mySAP ERP contracts were reported. In addition, interest continues to grow with SAP's NetWeaver, application and integration platform, Kagermann said.

"[NetWeaver] is responsive and innovative and, at same time, it lowers development costs and integrates disparate systems, and customers are seeing that," Kagermann said.

SAP is also seeing increases in sales to small and midsized businesses (SMBs). Kagermann said the company has about 6,300 All-in-One and 6,000 Business One customers worldwide. Both software products are aimed at the SMB market.

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Kagermann also revealed a road map of the development of SAP's NetWeaver application and integration platform.

By 2006, the company will launch a complete business process platform or enterprise services architecture using NetWeaver with its All-in-One product for SMBs. The entire business suite will be integrated on the architecture, which SAP calls "applistructure," by 2007.

The biggest challenge for SAP is to be clear with customers as it transitions to its enterprise services architecture, Hamerman said. SAP will retain a lot of elements in its current architecture, preserving support for the ABAP development code base.

The new architecture exposes a lot of its application components to Web services interfaces to allow customers to easily reassemble the application components and combine them with third-party vendors.

"SAP has been leading the application industry in moving toward a service-oriented architecture," Hamerman said. "I think some of the terminology and concepts they've used has not always been understood and that is where their focus will be."

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