TBR 1Q11 SAP Initial Response
 

TBR 1Q11 SAP Initial Response

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Technology Business Research is a different kind of research company. Our bottoms-up approach provides a look at the technology industry unlike anything you’ve seen before. We analyze company ...

Technology Business Research is a different kind of research company. Our bottoms-up approach provides a look at the technology industry unlike anything you’ve seen before. We analyze company performance in professional services, networking and mobility, computing and hardware, and software on a quarterly basis, leveraging our data to create industry benchmarks and landscapes that provide a business perspective on leaders and laggards and their business plans. We are experts in the business of technology.

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    TBR 1Q11 SAP Initial Response TBR 1Q11 SAP Initial Response Presentation Transcript

    • SOFTWARE BUSINESS QUARTERLYSM1Q11 INITIAL RESPONSESAP AGFirst Calendar Quarter 2011First Fiscal Quarter 2011 Ended March 31, 2011Publish Date: April 28, 2011Author: Elizabeth Hedstrom Henlin(elizabeth.hedstromhenlin@tbri.com), SBQ AnalystContent Editor: Allan Krans, SBQ Senior Analyst TBR T E C H N O L O G Y B U S I N E S S R ES E AR C H , I N C .
    • Executive Summary TBRSAP is prioritizing increasing market share and credibility with customersas corporate growth engines for 2011TBR Position Company Objectives • TBR believes SAP is capitalizing on the expertise and Make SAP a growth company once again: Target growth credibility of partners to introduce smaller, scalable, through a three-pronged product strategy (on-premise, and, in many cases, targeted versions of its offerings on-demand, on-device) through orchestration. to the midmarket. • SAP’s 1Q11 performance showed growth (21% total • TBR maintains that co-CEOs Jim Hagemann Snabe revenue year-to-year), even as the company and Bill McDermott are creating a “cult of continued to change its core business through a focus personality” that may approximate that of Steve on new segments and industry-specific offerings. Jobs and Apple in the coming quarters. They have Refocus strategy on innovation: Leverage customer succeeded to such an extent that market coverage adoption of cloud and mobile solutions to drive cross- of the HP/SAP hiring battles has focused on the idea portfolio sales. that short of either co-CEO leaving, no executive at • In 1Q11, SAP and Verizon announced a joint CRM SAP is irreplaceable. solution that will be deployed via Verizon’s cloud. SAP 1Q11 PERFORMANCE VS. EXPECTATIONS In $ Millions, except EPS Consensus Guidance Range Actual Deliver superior value to customers: Drive revenue Revenue $ 4,186 SSRS 12%-15% YTY $ 4,068 growth and customer satisfaction through value Operating Income N/A 30% - 31% OM $ 803 engineering and value consumption. Expand ecosystem Non-IFRS EPS $ 0.47 N/A $ 0.46 program to all partners to drive revenue growth and end-user satisfaction. SAP 2Q11 GUIDANCE AND EXPECTATIONS • In 1Q11, SAP launched solutions specific to numerous In $ Millions, except EPS TBR Estimate Consensus Guidance Range customer segments, including compliance, public Revenue $ 5,149 $ 3,000 SSRS 12%-15% YTY sector, telecom and financial services. Operating Income $ 1,245 N/A 30% - 31% OM Non-IFRS EPS N/A $ 0.58 N/AReported euros are converted to U.S. dollars using the average quarterly exchange rate of 1.345 dollars per euro.2 SAP 1Q11 Initial Response | Software Business Quarterly ©2011 Technology Business Research, Inc.
    • Executive Summary TBRPartnerships are driving SAP’s indirect sales success in new segments,especially within the SME market Key Developments • Executives are publicly committed to seeing SAP reclaim its former glory as a “growth company,” and are targeting the cloud and SME as market opportunities. • SAP’s challenge will be overcoming the credibility gap it faces in SME, where customers seek cost-effective ERP solutions that map to their needs, while SAP’s brand and portfolio are aimed at and linked to large enterprises. SAP is committed • 1Q11 saw SAP’s best performance in this segment to date. to overcoming • Other 1Q11 activity supporting down-market share growth revolved around industry- credibility and cost centered work with Symantec and Verizon, launching a joint military solution and a barriers to success mobile CRM tool, respectively. in the SME segment • Regionally, SAP partnered with RheinEnergie in addition to a three-way agreement with ePages and Honico, launching an energy-targeted CRM project and a financial services-focused CRM cloud platform, respectively. • SAP is positioning itself to aggressively pursue share growth in this segment over the coming quarters, utilizing not only the strength of its channel but the expertise of partners that understand how to sell into the SME segment. • Driving global adoption of SAP’s HANA appliance will be critical to ensuring the SAP’s business company retains a leading position in the BI market. analytics (BI) HANA • SAP will use the HANA appliance as a means to tighten its alignment with both BI and appliance will drive the cloud via application development. opportunities for • The market is very interested in applications for HANA and the possibility of partner new cloud-centric engagement through SDKs, as shown through multiple questions during the 1Q11 partnerships earnings announcement.3 SAP 1Q11 Initial Response | Software Business Quarterly ©2011 Technology Business Research, Inc.
    • Executive Summary TBR SAP posted solid performance across segments, but opportunities exist to improve revenue growth in Germany and Brazil Segment Revenue Performance and Strategies Segment Financials Software revenue increased 26% to €583 million. This is consistent growth, and Software reflects the necessary overall sequential changes for SAP’s business, which witnessed record software sales in 4Q10. Support revenue increased by 19% year-to- Support year to €1,655 million. Revenue for software and related services increased 20% year-to-year to €3,024 Software million. Gaps in key markets slowed this 16.8% SAP NET REVENUE, GROWTH AND PROJECTIONSTBR growth, notably Germany’s 7% year-to-year $24 45% Revenue Growth Year-to-year & Related number (and mature market) as well as 19.7% 27.2% $20 10.5% 20.5% 39.8% 14.9% 9.2% 30% Services Brazil being the referenced cause of $16 4.7% 9.2%In $ Bi l lions 15% $12 12.3% 16.8% 17.2% 18.0% 0.8% 0% diminished overall Latin American $8 8.1% -7.7% -15% performance. $4 -30% $0 -45% SAP saw notable improvement in its cash 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 CY09 CY10 CY11 CY12 flow (103% year-to-year, highest 1Q figure USD Net Revenue Est. Est. Euro Net Revenue Est. Other ever), which will empower executives to USD Revenue Growth Year-to-Year Euro Revenue Growth continue to commit resources in support of the company’s growth strategy. Reported euros are converted to U.S. dollars using the average quarterly exchange rate of 1.345 dollars per euro. 4 SAP 1Q11 Initial Response | Software Business Quarterly ©2011 Technology Business Research, Inc.
    • Financial Model Strategy TBRSAP’s growth initiatives, as well as the cyclical nature of software sales,are reflected in lower margins for 1Q11Revenues: • Software revenue grew 24% year-to-year, credited in part to the initial integration of Sybase. • Support revenue grew 19% year-to-year, illustrating a strong rebound in customer loyalty for SAP. • Services revenue also increased 24% year-to-year, due to the rollout of rapid deployment services and the standardization of offerings.Margins: • Operating margin in 1Q11 was 19%, which can be credited to elevated cost of services as SAP integrates acquired products and launches standardized services offerings to implement these programs across the portfolio. • TBR maintains that success for SAP in coming quarters will require the company to quickly realize any possible efficiencies and eliminate existing redundancies from the Sybase acquisition.Expenses: • Operating expenses rose by 24% year-to-year, while R&D expense rose by 27%; both are credited to Sybase (from acquisition costs as well as the gap in 2010 comparable numbers, which predate the acquisition).Reported euros are converted to U.S. dollars using the average quarterly exchange rate of 1.345 dollars per euro.5 SAP 1Q11 Initial Response | Software Business Quarterly ©2011 Technology Business Research, Inc.
    • Go-to-Market and Product Strategies TBRPartners are SAP’s best resource to learn how to grow a SME businessSAP needs the knowledge and capabilities of partners to downsize its product arsenal accordingly • Success down-market is high stakes for SAP, as the company faces credibility issues with SME customers as it seeks to grow its percentage of revenue from this segment. SAP’s portfolio was built for the largest of large enterprises – attempting to sell those products “as-is” does not meet the specific needs and cost-sensitive mindsets of SME customers. • 1Q11 partnerships with ePages and Honico eBusiness have allowed SAP to launch a cloud-based eCommerce hub for small and midsize businesses. This offering will utilize the scale of both partners, and is built on top of existing SAP Business All-In-One capabilities.TBR Position: • TBR believes further streamlined cloud offerings will enable greater deployment of SAP products (and brand) in the midmarket at minimal additional cost. Software Services Product Strategies Stack Offerings Services Strategies • Integrate modular SaaS functionality into • Expand Enterprise Support from seven to flagship Business Suite to increase flexibility Software nine years. in deployment and consumption. BI Stack • Continue to roll out the combined Enterprise • Accelerating time to value via SAP & Standard Support offerings, building Enhancement Packages. Apps Consult support across key segments. • Move to segment-orientation versus • Increase the number of certified SAP platform to better address unique customer MW Premium technicians available to partners. requirements. • Invest in prepackaged rapid deployment • Integrate BusinessObjects and Sybase Base services to establish global standard service DB Support offerings across the portfolio to add components that will reduce risk and intelligence and performance management. improve profitability. OS Education • Expand OnDemand offerings into on-device • Increase knowledge training and accessibility and mobility. of on-demand offerings.6 SAP 1Q11 Initial Response | Software Business Quarterly ©2011 Technology Business Research, Inc.
    • Go-to-Market and Product Strategies TBRSAP co-CEOs are ready to deploy a transformative product and go-to-market arsenal to capitalize on new opportunitiesSAP’s commitment to acquire new companies as “it fits into [their] strategy and helps build [their] relationship withcustomers” (versus acquisitions solely to gain share) remains evident in its 2011 strategy • SAP co-CEOs Hagemann Snabe and McDermott focused on balancing product portfolio innovation (e.g., 1Q11 launch of new GRC offerings built on BusinessObjects) with active partnerships and acquisitions (e.g., Sybase). • Context on that growth plan came via Simon Dale, Solutions SVP for SAP Asia-Pacific and Japan, who noted that SAP was working on arrangements for customers where they could “…either get the whole functionality managed by a third-party vendor or consume specific functions on an as-needed basis in a private cloud arrangement. …”TBR Position: • TBR believes SAP has shifted its focus on partnerships and potential acquisition targets to maximize portfolio diversification as well as appeal to SME customers. TBR expects competitors to react to SAP’s increasing presence in this segment by adjusting their own partnerships and acquisition strategies. SAP 1Q11 Revenue Mix By SegmentIndirect Sales Strategies Direct Sales Strategies• Invest in formal ecosystem • Target large enterprise through development, cooperation and 19% industry, compliance & BI Software community building. €583 M perspectives to expand SAP’s• Support partners with development footprint and share of wallet. tools, templates, marketing • Partner with VARs and SIs to Services 33% resources, development funds and €697 M maintain full channel training/certification. involvement, including direct-• Cooperate with partners on joint named accounts. sales engagements. 48% • Sustain customer contact by Software-Related Services• Leverage distributors to better €2.327 M directly handling custom coding manage resellers. and support contract renewals.Reported euros are converted to U.S. dollars using the average quarterly exchange rate of 1.345 dollars per euro.7 SAP 1Q11 Initial Response | Software Business Quarterly ©2011 Technology Business Research, Inc.
    • Resource Management Strategy TBREngaging partners will not only drive new revenue for SAP, but alsobroaden and invigorate existing SAP product linesStrategy• Reinvent strategic outreach in wake of difficulties in prior years, including focus on centers of innovation.• Build market share, particularly in BRIC countries.• Work with partners to drive modular offerings for customers in key verticals and geographies.Alliances• To rebuild global market strength (Germany and Brazil’s 1Q11 performances were highlighted as having hindered overall growth), SAP is focusing on regional alliances, as exemplified by its partnering with RheinEnergie on an SAP SEGMENT CONTRIBUTIONS energy-centered CRM offering. TBR 100%• In addition, SAP is releasing new software in Hindi as well 90% € 479 € 528 € 565 € 625 € 570 € 546 Est. Other Revenue 80% as building a new development office in Germany. 70% In $ Mi l lions Est.Training 60%• Key 2011 segments for SAP are mobile and cloud, with 50% € 1,656 Revenue Consulting Revenue € 1,394 € 1,526 € 1,559 € 1,655 € 1,873 Verizon as the go-to-market partner. Their joint CRM 40% Maintenance 30% product offers an easy-to-use preconfigured solution. 20% € 1,507 LicenseLeadership Changes 10% € 464 € 637 € 656 € 583 € 713 0%• In the wake of HP’s successful poaching of SAP executives, 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 Est. SAP has promoted from within the SAP team or recruited Ca l endar Quarter SOURCE: TBR AND IBM from adept competitors to fill those roles.• TBR expects this trend to continue in 2011, as SAP emphasizes its market strength and positive progress.8 SAP 1Q11 Initial Response | Software Business Quarterly ©2011 Technology Business Research, Inc.
    • Income Statement TBR SAP AG CONSOLIDATED STATEMENT OF INCOME (i n € Thous a nds ; except s ha res i n mi l l i ons ) TBRNote: CALENDAR QUARTER 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 Est.Income Statement Total Revenue € 2,509,000 € 2,894,000 € 3,003,000 € 4,058,000 € 3,024,000 € 3,415,000 Cost of Sales € 850,000 € 912,000 € 1,044,000 € 1,141,000 € 1,072,000 € 1,127,000reported using IFRS Gross Profit € 1,659,000 € 1,982,000 € 1,959,000 € 2,917,000 € 1,952,000 € 2,288,000 Sales and Marketing € 557,000 € 658,000 € 642,000 € 787,000 € 677,000 € 683,000 General and Administrative € 148,000 € 156,000 € 157,000 € 177,000 € 177,000 € 195,000 Research and Development € 393,000 € 397,000 € 453,000 € 481,000 € 498,000 € 502,000 Restructuring € - € 1,000 € (2,000) € 2,000 € - € - Other Expenses € 4,000 € (4,000) € (7,000) € (931,000) € (3,000) € - Operating Expense less COGS € 1,102,000 € 1,208,000 € 1,243,000 € 2,374,000 € 1,355,000 € 1,380,000 Total Operating Expenses € 1,952,000 € 2,120,000 € 2,287,000 € 3,515,000 € 2,427,000 € 2,507,000 Operating Income € 557,000 € 774,000 € 716,000 € 543,000 € 597,000 € 908,000 Investment Income € - € - € - € - € - € - EBITD € 521,000 € 676,000 € 689,000 € 451,000 € 583,000 € 862,000 Income Taxes € 134,000 € 185,000 € 188,000 € 14,000 € 180,000 € 241,000 Net Income € 387,000 € 491,000 € 501,000 € 437,000 € 403,000 € 621,000 Earnings per Share € 0.33 € 0.41 € 0.42 € 0.37 € 0.34 € 0.52 Shares Outstanding (in millions) € 1,172,727 € 1,188,000 € 1,188,000 € 1,188,000 € 1,188,000 € 1,188,000 AS A PERCENTAGE OF REVENUE Cost of Product 15.9% 14.3% 17.1% 13.5% 16.4% 15.0% Cost of Services 18.0% 17.2% 32.5% 14.6% 19.1% 18.0% Cost of Sales 33.9% 31.5% 34.8% 28.1% 35.4% 33.0% Gross Margin 66.1% 68.5% 65.2% 71.9% 64.6% 67.0% Sales and Marketing 22.2% 22.7% 21.4% 19.4% 22.4% 20.0% General and Administrative 5.9% 5.4% 5.2% 4.4% 5.9% 5.7% R&D 15.7% 13.7% 15.1% 11.9% 16.5% 14.7% Operating Margin 22.2% 26.7% 23.8% 13.4% 19.7% 26.6% Other, Net -1.4% -3.0% -0.4% -1.2% 0.0% -1.3% Investment Income 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% EBITD 20.8% 23.4% 22.9% 11.1% 19.3% 25.2% Income Taxes 5.3% 6.4% 6.3% 0.3% 6.0% 7.1% Net Margin 15.4% 17.0% 16.7% 10.8% 13.3% 18.2% YEAR-TO-YEAR CHANGE Total Revenue 4.7% 12.3% 19.7% 27.2% 20.5% 18.0% Cost of Sales -6.3% 5.2% 23.1% 23.0% 26.1% 23.6% Gross Profit 11.3% 16.0% 18.0% 29.0% 17.7% 15.4% Sales and Marketing 8.6% 17.3% 24.4% 30.5% 21.5% 3.8% General and Administrative 6.5% 26.8% 18.0% 8.6% 19.6% 25.0% R&D 7.7% 6.4% 18.6% -2.0% 26.7% 26.4% Operating Income 81.4% 20.7% 15.7% -47.1% 7.2% 17.3% EBITD 81.5% 13.4% 22.6% -54.7% 11.9% 27.5% Net Income -46.2% 26.9% 2.0% -12.8% -7.8% 54.1% SOURCE: TBR ESTIMATES AND SAP.9 SAP 1Q11 Initial Response | Software Business Quarterly ©2011 Technology Business Research, Inc.
    • Balance Sheet TBR SAP AG CONSOLIDATED BALANCE SHEETSNote: (i n € Thous a nds ) TBR CALENDAR QUARTER 1Q10 2Q10 3Q10 4Q10 1Q11Balance Sheet ASSETSreported using IFRS Current Assets Cash and Equivalents € 2,413,000 € 3,605,000 € 2,828,000 € 3,518,000 € 4,477,000 Other Financial Assets € 683,000 € 574,000 € 258,000 € 158,000 € 252,000 Trade and Other Receivables € 3,555,000 € 2,768,000 € 2,382,000 € 3,101,000 € 3,214,000 Other non-financial Assets € 168,000 € 217,000 € 223,000 € 180,000 € 210,000 Tax Assets € 124,000 € 202,000 € 311,000 € 186,000 € 135,000 Total Current Assets € 6,943,000 € 7,366,000 € 6,002,000 € 7,143,000 € 8,288,000 Goodwill € 5,052,000 € 5,136,000 € 8,285,000 € 8,378,000 € 8,264,000 Intangible Assets € 849,000 € 829,000 € 2,400,000 € 2,376,000 € 2,218,000 Property, Plant, Equip. (Net of Dep.) € 1,393,000 € 1,415,000 € 1,415,000 € 1,450,000 € 1,443,000 Other assets € 307,000 € 337,000 € 374,000 € 404,000 € 446,000 Trade and Other Receivables € 58,000 € 66,000 € 68,000 € 78,000 € 75,000 Tax Assets € 110,000 € 125,000 € 120,000 € 123,000 € 124,000 Deferred Tax Assets € 447,000 € 364,000 € 391,000 € 735,000 € 722,000 Total non-current Assets € 8,250,000 € 8,306,000 € 13,084,000 € 13,575,000 € 13,322,000 Total Assets € 15,193,000 € 15,672,000 € 19,086,000 € 20,718,000 € 21,610,000 LIABILITIES AND EQUITY Current Liabilities Trade and other Payables € 708,000 € 698,000 € 766,000 € 908,000 € 794,000 Tax Liabilities € 74,000 € 3,000 € 136,000 € 160,000 € 77,000 Bank Loans € 7,000 € - € - € - € - Other financial Liabilities € 258,000 € - € - € - € - Financial Liabilities € 265,000 € 219,000 € 238,000 € 142,000 € 141,000 Provisions € 345,000 € 354,000 € 389,000 € 1,285,000 € 1,298,000 Deferred Income € 2,248,000 € 1,919,000 € 1,334,000 € 911,000 € 2,773,000 Total Current Liabilities € 4,752,000 € 4,183,000 € 4,050,000 € 5,133,000 € 6,212,000 Trade and other Payables € 33,000 € 34,000 € 54,000 € 50,000 € 43,000 Tax Liabilities € 247,000 € 259,000 € 359,000 € 371,000 € 403,000 Bank Loans € 699,000 € - € - € - € - Other financial Liabilities € 46,000 € - € - € - € - Financial Liabilities € 745,000 € 1,764,000 € 4,422,000 € 4,449,000 € 3,906,000 Provisions € 206,000 € 224,000 € 270,000 € 291,000 € 247,000 Deferred Tax Liabilities € 151,000 € 137,000 € 605,000 € 576,000 € 562,000 Deferred Income € 76,000 € 88,000 € 94,000 € 63,000 € 57,000 Total non-current Liabilities € 1,470,000 € 2,518,000 € 5,825,000 € 5,811,000 € 5,309,000 Total Liabilities € 6,222,000 € 6,701,000 € 9,875,000 € 10,944,000 € 11,521,000 Total Shareholders Equity € 8,971,000 € 8,971,000 € 9,194,000 € 9,757,000 € 10,079,000 Noncontrolling Interests € 14,000 € 15,000 € 17,000 € 17,000 € 10,000 Total Liabilities and Equity € 15,193,000 € 15,672,000 € 19,086,000 € 20,718,000 € 21,610,000 SOURCE: TBR ESTIMATES AND SAP.10 SAP 1Q11 Initial Response | Software Business Quarterly ©2011 Technology Business Research, Inc.
    • About Us Contact UsTechnology Business Research is a leading independent technology 1.603.929.1166market research and consulting firm specializing in the business and info@tbri.comfinancial analyses of hardware, software, networking equipment,wireless, portal and professional services vendors. www.tbri.com 11 Merrill DriveServing a global clientele, TBR provides timely and accurate market Hampton, NH 03842research and business intelligence in formats that are tailored to USAclients’ needs. Our analysts are available to further address client-specific issues or information needs on an inquiry or proprietaryconsulting basis.TBR has been empowering corporate decision makers since 1996.To learn how our analysts can address your unique business needs,please visit our website or contact us today. TBR T E C H N O L O G Y B U S I N E S S R ES E AR C H , I N C .This report is based on information made available to the public by the vendor and other public sources. No representation is made that this information is accurate or complete.Technology Business Research will not be held liable or responsible for any decisions that are made based on this information. This report is not a recommendation to purchasesecurities. This report is copyright-protected and supplied for the sole use of the recipient. Contact Technology Business Research, Inc. for permission to reproduce.