SAP Boosts Development Efforts

FRAMINGHAM (01/25/2000) - SAP AG said it has software development staff increased by almost 15 percent this month in an effort to accelerate the delivery of new applications for e-commerce, data warehousing and other uses that go beyond the back-office stronghold of its R/3 enterprise resource planning (ERP) system.

Chris Larsen, president of SAP's U.S. subsidiary in Newtown Square, Pa., said in an interview yesterday afternoon that the German vendor already has hired more than 700 developers at its various software labs around the world since the start of the year. SAP ended 1999 with about 5,400 employees in its research and development organization and 21,700 workers altogether.

The ERP market leader was slow to recognize the business potential of the Internet for corporate users and is now trying to catch up to other vendors in application areas such as e-commerce and customer relationship management (CRM). Larsen said the new developers will primarily work on those kinds of products as well as versions of SAP's software that are tailored for specific industries. Some will also work on custom development projects with individual users at their facilities as part of a new program that SAP launched last summer, he added.

In reporting its preliminary financial results for the fourth quarter of 1999 yesterday, SAP warned that additional personnel and marketing costs related to its Internet software initiatives make it likely that expenses will outgrow revenues by a small margin in the current three-month period. Slower growth in service revenues will also be a contributor, the company said.

SAP could have spread the R&D hiring out over the course of this year to reduce the financial impact in the first quarter, "but that would be [taking] a short-term perspective," Larsen said. Company officials decided to bite the bullet now "as opposed to dribbling these people out to avoid the cost increase," he added.

The newer applications that SAP is developing under the name mySAP.com are seen as especially critical to revitalizing the company's sales in the U.S. During 1999, the company said yesterday, revenues in the Americas region -- which is managed by the U.S. subsidiary -- grew a mere 7% while sales rose 29 percent in Europe and 27 percent in the Far East.

The U.S. market last year "took a hard right turn, and the bulk of the spending that was going on was related to the Web," Larsen said. But SAP's ability to deliver applications that extend R/3 to the Internet and emerging applications such as customer relationship management and supply-chain planning "was a big question mark" with many domestic users, he admitted.

SAP finally released an initial set of mySAP.com applications in September, and fourth-quarter revenues in the Americas region increased 12 percent after dropping year-to-year in the two previous quarters. Larsen said SAP expects "substantial" sales growth in the region this year, but he wouldn't disclose a specific target.

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