SAP is feeling the pinch as the worldwide economic slowdown hits home, with the software giant yesterday releasing "disappointing" first quarter results.
Thomas Otter, research director at Gartner, comments: “SAP’s revenue results were disappointing to investors. License revenue fell well below consensus expectations with the Americas and Asia Pacific leading the shortfall as the regions declined 30% and 47% year-over-year on a reported basis.
"Large suite sales and upgrades have been hit by the economic downturn, as customers look to significantly reduce costs. IT spend is not immune,” says Otter.
“Just as SAP’s customers have been making deep cuts in discretionary IT and other spending, so has SAP. The bright spot of the results has been SAP’s success with its own cost cutting initiatives, running ahead of forecast in terms of cost reductions.
"Deep travel cuts, internal IT project and capex reductions, a recruiting freeze and headcount reductions have helped SAP maintain a better than expected earnings per share (EPS). SAP should not be surprised that its customers are following a similar strategy themselves.”
Gartner believes that the discontent over maintenance pricing issues over the last six months also made it significantly more difficult for SAP to sell additional licensing to existing customers, especially in this economy.
“Today SAP announced changes to its recent enterprise support maintenance plans, extending out the timeframe for the price rises, and capping increases until 2015 as well as agreeing a benchmarking framework with SUGEN, the SAP user group executive network," says Otter. "This should go some way in helping rebuild strained relationships, but the next quarter will remain challenging, as few organisations look to make big-ticket software investments."
Despite the downturn in its fortunes, SAP remains confident about its long-term prospects.
“While visibility for software revenues remains limited, we continue to take the necessary steps to protect our margin in this tough operating environment,” says Leo Apotheker, co-CEO of SAP.
“The cost containment measures that we initiated in October of last year and carried into the first quarter of 2009 have really taken hold, and we are pleased with the resulting margin performance. We will continue to maintain tight cost controls.
"Our ability to deliver good margin performance in this environment, especially when you consider the restructuring charges related to the reduction of positions, is due to the strength, flexibility and scalability of our business model.”
He adds: “Customers, now more than ever, need clarity in their businesses, but they also need solutions that are quick to implement and provide a fast return on investment. We are providing customers with both with solutions from SAP BusinessObjects to our new SAP Business Suite 7, which gives customers the ability to quickly address critical pain points with pre-configured industry best practices in a modern and open architecture.
"In this difficult environment, we have maintained our market leadership because we have the industry’s broadest and deepest product portfolio for large, midsized and small companies, and we have the ability to continue to innovate. SAP is a strong company with a robust business model, a highly skilled workforce and a great customer base. We expect to exit this recession even stronger, just like we did after the downturn earlier in the decade.”