The enterprise market has seen a succession of strong quarters. IBM delivered a strong Q2 and uplifted its full year outlook. Yesterday, SAP did the same. Although not exactly comparable, Oracle posted a strong finish to its financial year. Just how good was SAP's last set of results and what's going on?
Morgan Stanley's Adam Wood said in a research note: "The fact 2Q was driven by the core business is another clear positive as HANA / Mobile are still to contribute." On a call today with Jim Hagemann Snabe, co-CEO SAP, he said that current sales are being driven by a value based approach to core offerings where the company is helping customers get more out of their SAP investments via an easier consumption model.
He reiterated an earlier conversation where he noted that companies spend 85% of their IT investments on keeping existing applications going. Snabe said that SAP is encouraging customers to adopt solutions that reduce that dependency to 60%, leaving more for innovation.
SAP has relentlessly talked up HANA the last six months. Bill McDermott, co-CEO uses every opportunity to emphasize that at €10 million per week, HANA represents the strongest pipeline of any product in the company's history. Even so, SAP estimates that HANA will contribute around €100 million to top line revenue by the end of 2011. If the pipeline is as strong as the company suggests and the value as significant as we are led to believe, then this figure could be conservative. Snabe could not name live customers on this occasion but says SAP does have customers in production on HANA technology. In the earnings release, SAP named Colgate-Palmolive and Lenovo as customers using HANA. While these are flagship names, they would not necessarily contribute to top line revenue as they will have negotiated global 'all you can eat' licenses. That trend will likely continue in the second half as SAP gets more customers running HANA.
In the field, I am hearing a number of complaints about technical deficiencies or difficulties with HANA. Snabe dodged a direct answer on this topic, preferring to explain that SAP is building out 90% of the required technology, leaving parters with the 'last mile' either as differentiating solutions for customers or for productizing into solutions with broader appeal. In its defense, I am also hearing that SAP is responding quickly to critical problems.
Business ByDesign is not making any appreciable impact on the top line. Snabe said that 2011 was always going to be the year when ByDesign would be introduced to the market as a new solution and that 2012/13 is the timeframe through which the company expects to see a more significant contribution.
That partially explains why the ByDesign appstore is relatively threadbare with some 50 applications only one of which is a mobile offering. On the call I complained that the only way anyone can see what's in the appstore is by having an SAP customer number. This means that a prospect evaluating ByDesign has no immediate way of knowing whether required functionality not available in the base solution is provided through an add-on. Snabe said the company had not thought about that but agrees that having an open appstore makes a lot of sense. As of today, the company counts 550 ByDesign customers and 180 partners and expects to report 1,000 customers by year end.
As you might expect, Snabe was upbeat. The company appears to be firing on all cylinders but things can change rapidly in an uncertain economy.
I still believe SAP has a lot of work to do in order to make ByDesign an immediately short listed solution but it is understandable that the company is placing more emphasis on those big ticket deals. What we now need to see are customers smiling as broadly as SAP's management as proof that the company is delivering on its messages. Until that day comes, I will reserve judgment on whether SAP is delivering to its customer promises.
On the plus side I detected a change of tone that has been long awaited from SAP. Throughout the conversation and regardless of the line of business, Snabe talked about the need to bring better value to customers. As someone who bats for buyers, that is a welcome and refreshing change from other earnings calls where the emphasis is on fawning to The Street while beating up on competition.
The recorded conversation can be found here.