SAP results show downturn in manufacturing SMEs

While the software giant’s previous quarter figures revealed no sign of a downturn, it’s clear that the last two weeks of the latest quarter saw carnage, with many customers holing off on expected system purchases. Analyst IDC notes “a significant undershoot on expectations of software sales in the quarter,” which grew by 7% year-on-year – equating to 11% at constant currency. IDC also notes that SAP also withdrew its full year guidance to the financial community, whereas previously it had talked of growing software and software-related services (maintenance and support) at 24% to 27%. IDC estimates that there has been an organic decline in software sales for SAP at least in France and the UK, although Germany still seems to be performing well. Also, although the effect was greatest among SMEs, with bigger businesses apparently proceeding with their purchasing plans, IDC makes the point that big firms need SMEs customers and partners, “so it won’t be long before big businesses also reduce their spending on ERP”. Says David Bradshaw, IDC’s research manager, applications and solutions for EMEA: “Only time will tell how enduring the effect of the financial meltdown will be on overall ERP demand, though we expect SAP and other business applications vendors to experience tough conditions in Europe through 2009.” Nevertheless, he agrees that some ERP projects will still go ahead, conceding that many are replacements of custom-built back office applications that no longer support business requirements, so have to be done some time. He also points to software as a service (SaaS), which has been growing in the US and might yet catch on in Europe – although SAP’s Business ByDesign SaaS story appears rather less than bold. Says Bradshaw: “Almost every SaaS player that has been successful has spent truckloads of money on sales and marketing early in their product’s lifecycle. Some continue to do this and, as long as the customer acquisition costs are below the estimated lifetime value, this is good business sense. “We believe that if SAP holds back on the marketing spend in favour of ‘acceptable margins,’ SAP strongly risks squandering its first-mover advantages in the area of ERP as a service. This window of opportunity will not be open forever.”