In a recent press release, SAP AG (NYSE:SAP) reported that sales from the financial services vertical more than doubled in the Asia-Pacific region in fiscal 2013. The Asia-Pacific market is the smallest market in SAP’s geographic portfolio, led by a 45% share for the EMEA region and followed by a 38% share for the Americas market. Non-IFRS revenues from the Asia-Pacific region stood at €2.86 billion in FY13, up 8% from a year ago in constant currency terms. Non-IFRS software and software-related service revenues from the region grew at a double digit pace of 10% in fiscal 2013. Total revenues and software and software-related services revenues grew 7% and 9% from the EMEA region and 9% and 13% from the Americas region.
In this note, we access key areas of growth for SAP in the Asia-Pacific region. We have a Trefis price estimate of $95 for SAP, which stands at a premium of approximately 22% to its current market price of $78.
According to Forrester, customer experience will become one of the cornerstones for businesses and Chief Information Officers (CIOs) in 2014, driven by strengthening competition and the need to differentiate themselves.  These investments could arise from a number of verticals as industries across the business spectrum chase higher profitability in a weak environment. Be it consumer retail, banking or core manufacturing, IT investments in 2014 will be done with customer experience innovation as its main objective.
Gartner expects growth in Chinese IT spending to accelerate to 8.7% in 2014 from 6.7% in 2013, while overall APAC IT investments are expected to grow 5.5% to reach $767 billion in 2014.  E-commerce in the Asia-Pacific region is expected to be the strongest driver this year, driven by the burgeoning Chinese e-commerce industry. Forrester estimates that the total number of online buyers from China in 2014 would reach close to 356 million, surpassing the entire population of the U.S.  Building such scale requires significant investments into upgrading the existing IT infrastructure without depressing profitability in a weak macroeconomic environment, which is provided by the changing face of the global IT systems market. Leaner SaaS deployments reduce hardware footprint for enterprises and provide avenues to reinvest savings from a leaner IT system into its operations.
Similarly, industries such as healthcare, government, communications and manufacturing are expected to offer the greatest opportunities for technology vendors, with IT investments driven by a strong affinity for automation across these industries. IDC states that investments into the manufacturing industry would help drive visibility into the supply chain and facilitate the ability to take decisions in real-time.  Real-time data analytics is expected to percolate across all industries eventually as customer experience becomes paramount for all enterprises, which should benefit SAP’s strategy to deploy application software suites on its high performance in-memory computing platform HANA.
In the financial services vertical, SAP reported a significant market gain in 2013, with more than 20 banks and 10 insurance companies opting for SAP solutions.  Financial institutions in the Asia-Pacific region are leading the way into mobile financial services, providing a convenient and simple experience for customers, and are quickly becoming the main communication and marketing channel.  According to an IDC white-paper, online banking platforms were preferred by close to 57% of Asia-Pacific customers, with ATM and mobile banking services accounting for 26% and 5% of customers.  In the next five years, credit-card driven transaction volume in Asia-Pacific is expected to increase from $5.3 billion in 2012 to $13 billion by 2018.  This shift towards cashless transaction services, driven by online and mobile banking services, should lead to higher IT investments in the industry going forward.
We expect to see an increase in overall IT spending in the Asia-Pacific region, driven by an increase in automation of services to cater to better customer experiences that should expand revenue share of the Asia-Pacific geography for software vendors such as SAP. We intend to provide more in-depth IT trends covering specific industries and geographies in the future.
- Customers, Not Technology, Top Forrester’s Asia Pacific Technology Predictions in 2014, Yahoo Finance, November 2013
- Gartner says Asia Pacific IT Spending to Grow 5.5 Percent in 2014 as the Digital World Creates New Opportunities, Gartner, October 2013
- MANUFACTURING | Document at a Glance, IDC Insights, December 2013
- SAP More Than Doubles Sales in Asia Pacific Japan in Banking and Insurance Industries, Expanding Market Presence, SAP Newsroom, March 2014
- Asia/Pacific Banks Lead the Way into Mobile Financial Services: IDC Financial Insights, IDC Press Release, February 2014
- Banking on happy customers, SAP Blog, October 2013
- Banks need to improve IT to meet demands of booming Asia Pacific, The Jakarta Post, February 2014
Disclosure: No positions