SAP’s refocus on customers and innovation paid off with double digit software growth
SAP reported record software revenue of 35% year-to-year as it reached €1.5 billion in its fourth quarter. That growth led SAP to report preliminary earnings following the company’s restructuring efforts and go-to-market strategies to listen to customers and accelerate innovation.
Total revenue grew 27.2% year-to-year as SAP’s new on-device business lead to net new revenue. Co-CEO Bill McDermott stated that SAP believes it is not seeing pent-up demand from the recession anymore; the core business is back with SAP’s on-premise offerings in ERP and CRM. Business ByDesign, SAP’s on-demand offering, has over 100 customers after being available for six months. SAP reported that Business ByDesign is its fastest-growing product to date.
SAP recorded the €933 million litigation settlement with Oracle (ORCL), which resulted in a tax benefit but hurt overall operating margin and restricts free cash flow. Technology Business Research believes Oracle benefits in dragging out the settlement, as SAP is unable to use that €933 million to invest.
Full-year revenue reached €12.5 billion, growing 16.8% year-to-year, a large increase over 2009’s poor economic climate. SAP reported that in the six months since the close of the acquisition, Sybase (SY) contributed 3 percentage points to full-year growth, and added €150 million to operating income, resulting in direct profit. TBR believes Sybase provides new opportunities for SAP to expand its applications business, via on-device and in-memory technology, and we expect to see further developments.
SAP realigned executive talent to take advantage of opportunities
As part of SAP’s ongoing restructuring efforts, the company realigned its Global Field Organization. TBR believes the recent successes of SAP as it redirected efforts led McDermott to exert influence to promote talent from the inside, instead of repeating SAP’s routine executive shuffle. These leadership changes mark more changes to come.
TBR believes the realignment will help SAP target growth across its core geographies, as well as in emerging regions. Jose Duarte, formerly President of EMEA, will assume the position of President of Global Services. Franck Cohen will take over the role as President of EMEA. Robert Enslin is now the President of Global Sales, and Robert Courteau is the President of SAP North America, reporting to Enslin. Sanjay Poonen was promoted to President of Global Solutions Go-to-Market, where he will report to both co-CEOs, Jim Hagemann Snabe and McDermott.
Despite the strength of its business across 2010, SAP lost some of its executive talent to HP (HPQ) as former CEO Leo Apotheker poached from SAP and Marge Breya left to become General Manager of HP Software and Solutions. TBR believes SAP may see more departures as Leo offers executive roles within the growing HP Software division.
Security will enable SAP to drive more value with its on-demand and mobile businesses
SAP acquired a portion of Switzerland-based Secude AG’s business, purchasing security software and identity and access management software. TBR believes SAP had a gap in security that is filled by this purchase, and will support on-demand and on-device initiatives. While the purchase provides SAP with a broader customer base in EMEA, TBR believes a future acquisition in the Americas would help expand its customer base abroad.
As top competitor Oracle expands its business in systems management, SAP could stiffen competition by making an acquisition on Oracle’s main playing field. SAP invested $350 million in its venture fund to support to development of key software technologies as part of its ongoing innovation. TBR believes this investment provides SAP with an advantage in making strategic acquisitions in the future.
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