For the first time in nearly two years, SAP AG executives offered a bullish outlook for business software sales in 2004, pointing to a general recovery in global IT spending.
SAP Chairman and Chief Executive Officer Henning Kagermann, speaking Thursday at a webcast news conference in Frankfurt, Germany, said he expects 2004 will continue the upward trend in IT spending that began in the middle of last year. "In the second half of 2003, we started to see signs of change (in business software spending), especially in Germany but in other key markets such as Asia and the U.S.," he said. "We expect the market to return to double-digit growth markets this year."
Kagermann delivered the upbeat forecast as SAP, Europe's largest software company, reported a 3 percent drop in fourth-quarter software license revenue to Euro 931 million (US$1.2 billion as of Dec. 31 the last day of the period reported) from Euro 958 million in the same period a year ago. The company attributed the decline in sales largely to a weak U.S. dollar. Based on a constant currency, fourth-quarter software license sales increased 3.5 percent, it said.
Sales at SAP were hit hard by the rise in the euro against the dollar and other currencies last year. The company's 2004 forecast is based on a euro exchange rate of US$1.25, Kagermann said.
By comparison, German communications equipment vendor Siemens AG, which also released financial results Thursday, said it will base its internal calculations this year on an exchange rate of $1.30.
SAP's bright prospects for 2004 stem from improved performance in key markets, particularly the U.S., where the company has restructured its sales organization, according to Leo Apotheker, president of global field operations at SAP. Last year's U.S. sales grew 23 percent year on year. "We are also seeing recovering in the Asia Pacific area, and in emerging markets, such as China and India," he said.
Many of the Chinese customers, Apotheker said, are local enterprises and not subsidiaries of multinational corporations already using SAP software.
While SAP intends to sell more software in the Chinese and Indian markets, the company also aims to take advantage of hiring less costly software developers in these countries, according to Kagermann. "Developers in these regions are as good as those in Europe and the U.S. but cost four to five times less," Kagermann said. "SAP can't avoid the trend to use these people, but we don't intend to get rid of our skilled programmers in Germany or at any of our other key development centers." The company intends to add new programmers to the payroll in 2004, Kagermann said, without providing numbers.
In addition to the general upswing in IT spending and a targeted expansion in emerging markets fueling sales, SAP expects to sign a higher volume of smaller contracts to both large companies and small and medium-size enterprises, according to Kagermann. Many big companies are keen to execute more smaller projects to see a quicker return on investment, he said. As for the mid-market, the company's two offerings, mySAP Business One and mySAP All-in-One, are attracting increasingly more customers, he said, adding that the company plans to hire additional staff to support its assault on the mid-market.
Short-term profitability will not come at the cost of growth opportunities, Kagermann said.
By the end of 2003, SAP's global market share of business software grew to 59 percent, up one percent from the previous year, Kagermann said. The company is now the largest supplier of CRM (customer relationship management) software in the world, beating Siebel Systems Inc. for the lead position, he said.
At the end of the fourth quarter, SAP employed 29,610 people, up from 29,165 the previous month.