Apotheker on the offensive

In the second of SAP's press calls today, Leo Apotheker brought some of the sex and sizzle for which he is well known to the discussion around the previously announced boardroom changes. Asked to comment on the fact Larry Ellison, Oracle's CEO was pretty much silent about the BEA acquisition at the last Oracle earnings call, Apotheker quipped: "Maybe he had a sore throat or something."

Apotheker also confirmed that 2008 is the peak year for SAP R&D investments and that over the coming years, SAP will scale back its investments by around one percent per annum. He chose not to indicate the extrent to which R&D will be scaled back but did say this is not a case of providing additional funds for sales and marketing: "We have a highly optimized marketing budget and we will not spend a penny more than is necessary." That can only mean one thing. While SAP is clearly on a changed path with sales firmly in focus, SAP is now moving to become more cash and profit generative.

This must be as a direct response to the way Oracle and Microsoft are continuing to generate huge cash piles from enterprise sales and service revenues. Oracle has been able to take advantage of its cash machine to make some $25 billion in acquisitions while SAP could only stand by and observe. It also means that unless a price cutting war breaks out, SAP will continue to look for 22 percent (of sales value) maintenance revenues, which in turn generate high profit and cash returns.

I've said before but it is worth repeating: profit levels for SAP, Microsoft and Oracle are at extraordinarily high levels, reflecting a maturing industry. That cannot continue indefinitely without customers asking why they should support a declining R&D model. How well SAP is able to navigate that discussion will be a crucial part of how well it performs financially. It will be a key metric upon which analysts will focus.