Dennis Byron

Supply Chain Management Enterprise Software: And Then There Was None

Bob (User 249699)--

Thanks for the comment

You may be right abou MANH. Terri O'Hanlon, its SVP of Marketing, made a similar comment above so I did not dig deeper. Again, my point is "be careful investing in sectors such as APS that primarily do not standalone as a market" (as illusrated by the way all of these companies were gobbled up) I think EAM may be the next such sector.

I did not do a post on August 12 and do not know MGI Research. This was my only post on JDAS so the article you reference must be elsewhere on SA?

Thanks again

Dennis Byron

Supply Chain Management Enterprise Software: And Then There Was None

Correction: A reader that apparently wants to remain anonymous has contacted me offline to note that Demand Management was acquired by Logility (which in turn is mostly owned by American). So there are basically none left by my analysis or just a few left as described in some of the comments above (for which we say thanks as always) that analyze it slightly differently.

To the question, "So what?," my point might have been lost in all of us waltzing down supply chain's memory lane. My point was that there are some functional software areas that will not support separate companies in which to invest. Spell checking was one year ago. APS was one as described in this post. And I feel EAM might be the next one in that category.

-- Dennis

The Good News Out Of IBM & SAP

Dolph, I talked about that possibility here ("itinvestmentresearch.c..." on August 6, 2006) based on comments by Hasso Plattner and just the fun of saying "What if." I really don't think IBM wants back into the ERP applications game (having exited in 1991) because of channel conflict and its strategy of becoming almost totally a services provider. And it has no need for SAP's billion-euro NetWeaver middleware business.

But "you never say never." Market dynamics could force IBM to reenter the ERP market in one of two ways.
1. The applications business could stay somewhat as it is today, heavily driven by perpetual right to use licenses but trending toward paying for the right to use as a monthly subscription (SaaS). In this scenario, the market will most likely be dominated by Microsoft, Oracle and SAP (and Intuit if it changes strategy vis a vis mid-sized enterprises). IBM would need to take advantage of the opportunity, if it evolves in this manner, by programs like the SAP/mainframe investment last year and by other programs with Lawson and others in the heritage AS/400 application supplier stable. In this scenario, IBM might choose to acquire one of its partners if Microsoft, Oracle and SAP successfully block Lawson and the others, and SAP is as good a candidate as there is for such an acquisition (forgetting likely anti-trust objections).
2. A second possibility is that the application business slowly contracts to be replaced—in a back to the future move—by technology-based business services (think ADP) where the brand of the application is not a major market factor. In this scenario, IBM would need to think in terms of acquiring many of the AS/400 application supplier partners, including Lawson and the JDE business of Oracle, for their industry and domain expertise. SAP wouldn't be much help to IBM in this scenario.

I used to think that scenario two would emerge quickly when my generation (first-year baby boomer; trained as a COBOL programmer) retired from IT management but I now fear, from talking to a lot of the X-generation moving into IT management (and still as techy as can be) that it is going to take another 10-15 years before enterprises move in large numbers to getting their IT as business services. As long as executive management feels that IT can provide competitive advantage and is not just a "payroll service," everyone will keep reinventing the wheel. IBM of course is already well positioned for both eventualities

Oracle Sues SAP: Below the Belt With a 2x4

Thanks for the correction, Diana.

I was joking in my post last nite but I really was on vacation that second week of July and didn't see the Reuters interview. I did "attend" the SAP conference call the following week (July 20) when SAP formally announced its Q2 2006 results and I didn't make note of any comments along those lines. I am sure the handlers had Henning pretty well prepped by the following week not to fall into the trap if the same question were asked.

I call it a trap because--as I posted here on SeekingAlpha a few days ago--the way to look at these competitive comparisons is on a trailing-12-month basis. Even Oracle suggests that in its investor material. In this case, Henning apparently was comparing one of his historically slow quarters with Oracle's historically fastest growing quarter. [Not too smart but not as dumb as allegedly stealing thousands of documents (that I think he could legally buy under restraint of trade regulations).]

Time period is only one methodological quirk than investors need to look at when comparing competitive software market share claims. Are they talking about license, license and maintenance, or total revenue (including subscription fees) is another.

Exchange rate is another. As I posted in January--when SAP claimed to have gained 3 points on the market in 2006 on an annual basis--that is probably just as misleading because SAP got a big exchange rate boost last year by most methodologies.

Another important methodological technique is to backcast. Oracle rarely does that because it is not required by GAAP.

Trying to account for all these factors (and no mormalization actions are ever perfect), SAP grew its applications product business (eliminating NetWeaver revenue) 12.4% last year while Oracle only grew its comparable applications software business 8.7%. Given Oracle's announcement on March 20, I expect that spread to have significantly narrowed when looking at SAP's trailing 12 months results for the period ending March 31, 2007 vs. Oracle's trailing 12 month results for the period ending February 28, 2007. Oracle might even begin to gain share for the first time since the PeopleSoft announcement.

SAP Moves into SaaS, Still Has a Long Way to Go

As promised, I followed up with SAP to try to understand the difference between its two types of Hosting. SAP's answer:

-- "The Hosting (the revenue flow of which) moved from Service Revenue to Other Services is so called Non-mandatory Hosting, meaning that the software can be hosted by SAP, our partners but also any other Hosting provider.

-- "Mandatory Hosting(, which) was previously in Subscription/Rental (Product) Revenue(,) is now (in) a new line item called Subscription and other SW related services. Customers can have their software hosted only by SAP and certified hosting partners, this is true for e.g. (for) SAP CRM on demand."

What's The Truth Behind SAP's Share-Gain Claim?

Follow-up from Dennis Byron, itinvestmentresearch.c...:

As noted in my orignal posting above, I need more information from SAP, and almost everyone else in the market, before confirming or questioning SAP's enterprise-application market share gain claims made on January 12, 2007 for 2006.

But at least against Oracle, which I suspect is all SAP cares about, the claim looks valid.

If you make some assumptions about:
- exchange rates ($1.19 to the euro in 2005, $1.20 to the euro in 2006)
- what Peoplesoft and Siebel did standalone in January 2005 and 2006 respectively (zero)
- what Retek/Portal/iFlex/Ste... did in their last independent quarters (basically same as their final reported quarters)
then:
-- SAP grew both license and license/maintenance revenue (what SAP calls software and product revenue respectively) between 12% and 12.5%
-- After backcasting, Oracle grew the comparable numbers (what Oracle calls "new software licenses" and "software license updates and product support" respectively) around 9% and 4.5% respectively.

No matter what the size of the market--or how you define enterprise applications--it looks to me as if SAP gained share on Oracle in the enterprise applications market, not the other way around as claimed by Oracle in December 2006.

[Per my methodology, SAP's reported numbers are multiplied by .95 to adjust for NetWeaver before being adjusted up for exchange rate. I have made no adjustment to SAP for Frictionless Commerce, Virsa, and Khimetrics, which would lower the SAP growth rate a bit but I suspect SAP will end up using a higher euro/dollar exchange rate so the two factors will tend to even up. I use the same exchange rate (whatever SAP publishes in their 20-F) for all quarters.

[Also, per my methodology, the Oracle numbers are based on the 12 months ending November 30, 2006 and I am using the lower "...product support" numbers that Oracle began reporting in mid FY 2006 for 2005 rather than the originally reported "...product support" numbers. Oracle lowerd the 2005 numbers (which increases the growth rate) for accounting reasons related to their acquisitions.

[In general, I am using the same methodology as I used for many years at IDC but IDC numbers may differ if they have changed methodolgy since I left. In addition, I believe IDC may try to make some estimate for the Decembers to normalize Oracle to the calendar.]

The spreadsheet is available at my website if anyone is interested.