Dissecting SAP's Second Quarter Courtesy of Bob Ferrari

Without question, the enterprise software market is going through a period of unprecedented turbulence. I've personally been looped into about half a dozen deals the past two quarters in the procurement space where planned ERP migrations / upgrades were put on hold, calling into question how best to invest in near-term Spend Management applications which were originally headed down the SAP/Oracle route. Collectively, these now deferred or cancelled deals are huge, representing hundreds of millions of dollars in software and consulting spending that is not going to happen. However, it could be a boon for non-ERP Spend Management providers who in many cases will benefit from the slowdown in planned ERP upgrades and migrations. But what does SAP's latest quarter tell us about the ERP and business applications market in general? Supply Chain Matters' Bob Ferrari has some useful things to say on the subject.

Bob reports that during the second quarter, SAP reported a "modest" 6% decline in total revenue, but software license revenue was down a "significant" 37% for the quarter "and the first six months of 2009". What does this mean for SAP? Bob writes that "from my viewpoint as an industry observer, you're going to hear and read about two different perspectives of SAP at this point. From a financial results perspective, the company seems to be positively weathering the current global economic recession through its actions in controlling costs and spending. That is obviously good for SAP. From a market strategy and product marketing perspective, there are, by my lens, troubling warning signs."

Strategy wise, Bob believes SAP's recent investments aren't yet paying dividends when it comes to driving new sales. He argues that "the previous multi-year effort to transform applications to SAP's NetWeaver platform and the current SAP marketing emphasis on enabling more responsive business performance through analytics has not as yet helped in boosting software license sales". In the coming quarters, perhaps this might "portend" that even "more significant changes are in the wind for SAP," as Bob suggests. Which is no doubt good news for procurement organizations looking to help IT negotiate software purchases and upgrades at better price points than before. And it's also good news for procurement when it comes to getting more attention from SAP with On Demand investments in the Spend Management area. After all, even smaller deals right now are still deals.

Jason Busch

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