hugo : SAP
Eine schöne Woche wünscht
SAPped of Energy
August 6, 1999 6:30 AM EDT
By Emily Burg
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Once upon a time Germany's SAP (symbol: SAP) was the first and last name in Enterprise Resource Planning (ERP) software, the applications which allows companies to integrate and organize every aspect of their businesses, from customer relations to supply chains.
Although many tried to compete with SAP, including PeopleSoft (quote, chart, profile), Baan (quote, chart, profile) and JD Edwards (quote, chart, profile), none could hold a candle to this star company that claims some of the world's top corporations among its 9,000 clients in 95 countries.
The 1990s were very good to SAP. Analysts considered the company the definitive market leader in ERP, and praised its first in advantage, innovation and global reach. The stock began a steady climb upward in 1996, peaking in June 1998.
But this year SAP has been in a slump. The company's ADR has taken a rocky drop down from its high of $61, and is now trading at around $30. Plus, SAP had a very disappointing second quarter, prompting analysts to issue caution warnings about the company in the near term.
Will the Teutonic giant regain its mojo, or is it on its way down, pushed aside by the ascendancy of rival companies?
Slow to Embrace the Internet
The answer seems to depend on one factor: how SAP responds to the fact that the Internet is the most dynamic force in business today.
It seems ironic that a company that has been as innovative and successful as SAP in the growing field of ERP would have been so slow to respond to the meteoric rise of the Internet and its impact on business.
But many think that SAP has lagged with respect to its Internet and e-business related systems.
"This may have hurt SAP sales this past quarter as well as for much of the last year, as its Internet products are in the infancy stage, while conversely possibly helping Oracle application sales, as seen by Oracle's recent uptick in application revenue," wrote analysts from Salomon Smith Barney in a recent report on SAP.
SAP plans to roll out four new types of Internet enabled software by the fall of 1999, including mySAP.com, an Internet-enabled e-business platform.
That should bring SAP up to speed with its biggest competitor in the e-business arena, Oracle (quote, chart, profile), but SAP will have to work hard to shake off the damage that not being on track with Internet software has already done to its business.
"The official launch of the product is expected by September 1999. However this entails a transition in terms of new product, new market, new execution efforts (sales and marketing) and new pricing model," wrote analysts at BancBoston Robertson Stephens in a recent report on the company.
"mySAP.com appears to be the right move towards embracing the Internet and addressing an increasing market emphasis on e-business. However, at this point, we are not fully clear on the impact of mySAP.com on the SAP business mode in terms of timing and magnitude," the report continued.
Another problem for SAP has been Y2K. Analysts think that Y2K concerns have also lead to a slowdown in software spending. According to SAP's second quarter reporting, new customers accounted for 33% of sales in the second quarter, down from 50% of sales last year.
Although Oracle has been doing well in Internet enabled software, which has driven its share price up, ERP players in general have had a pretty rough year. The shares of both Baan and PeopleSoft are down for the year, and ERP companies are expected to have a tough time going forward.
"Although we believe that SAP is best positioned for all the ERP players going forward and that its huge R&D budget should help it continue to pump out products, we believe that the next couple of quarters could be tough for all players in this space," wrote analysts at Salomon Smith Barney.
But, a turnaround is expected in early 2000, making analysts maintain long-term attractive but near-term cautious ratings on SAP. SAP was the market leader in business software for a long time. Moreover, it proved to be a strong investment opportunity. Analysts think that by the end of the year SAP's rocky days will be behind it.
"We believe SAP represents a core holding in the Enterprise Applications software space and a compelling long term investment opportunity for the following reasons: 1) major market opportunity over the long term; 2) dominant player in the ERP market; 3) strong competitive market position; 4) multiple growth dimensions and 5) highly profitable business model," wrote analysts at BancBoston Robertson Stephens.
It looks like with time, SAP might get its strength back after all.