SAP's enterprise software sales disappoint

Summary:SAP's fourth quarter and annual sales growth is falling short of expectations, lopping 10 percent off the company's shares. The company said its product revenue growth would be about 13%, at the low end of SAP's previous outlook.

SAP's fourth quarter and annual sales growth is falling short of expectations, lopping 10 percent off the company's shares.

The company said its product revenue growth would be about 13%, at the low end of SAP's previous outlook. Software revenue growth will be 13.5%, well below the range of 15% to 17% expected. Earnings per share are expected to be 1.59 euros, above expectations.

As Eric Savitz at Barron's notes, SAP's results aren't easy to decipher. The short version is SAP fell short of expectations for the year and fourth quarter. It also remains to be seen how SAP's quarterly results will impact talk of management succession plans.

Meanwhile, SAP estimated that it had a 24.2 percent share of core enterprise application vendor sales, up 3 points from 2005. However, SAP provided a hefty footnote to its market share stat:

In previous quarters, worldwide peer group share was provided based on a peer group of Microsoft Corp. (business solutions segment only), Oracle Corp. (business applications only) and Siebel Systems, Inc. The Company believes that after the large amount of consolidation that has occurred among the larger companies in the software industry, the peer group has become too small to provide an adequate metric for the purpose of measuring growth of sales share.

Therefore, the Company will now be providing share data based on the vendors of Core Enterprise Applications solutions, which account for approximately $16 billion in software revenues as defined by the Company based on industry analyst research. For 2006, industry analysts project approximately 4% year-on-year growth for core Enterprise Applications vendors. For its quarterly share calculation, SAP assumes that this approximate 4% growth will not be linear throughout the year. Instead, quarterly adjustments are made based on the financial performance of a sub set (approximately 30) of Core Enterprise Application vendors.

As for the regional results, software revenue growth rates in the fourth quarter were as follows: Europe and Middle East had sales gains of 13% over a year ago; Americas had no growth; U.S. had growth of 4%, Asia Pacific had 2% and Japan had 4%.

Judging by SAP's verbiage it appears software revenue surged in the second half of the year in Europe and the Middle East and Asia, but waned in the Americas and U.S. in the backstretch. For instance, actual software revenue growth rates for the year in the U.S. were 13%, but the fourth quarter showed 4% growth. Given the fourth quarter weakness, it appears CIOs weren't flushing their budgets and spending on SAP.

Add it up and you have the following:

--Oracle gets some anti-SAP fodder;

--SAP's conference call will be monitored closely to get a read on enterprise application spending;

--And doubts will surface about the enterprise resource planning market.

Topics: SAP

About

Larry Dignan is Editor in Chief of ZDNet and SmartPlanet as well as Editorial Director of ZDNet's sister site TechRepublic. He was most recently Executive Editor of News and Blogs at ZDNet. Prior to that he was executive news editor at eWeek and news editor at Baseline. He also served as the East Coast news editor and finance editor at CN... Full Bio

zdnet_core.socialButton.googleLabel Contact Disclosure

Kick off your day with ZDNet's daily email newsletter. It's the freshest tech news and opinion, served hot. Get it.

Related Stories

The best of ZDNet, delivered

You have been successfully signed up. To sign up for more newsletters or to manage your account, visit the Newsletter Subscription Center.
Subscription failed.